Investors As Farmers? Think Again

The land market in Saskatchewan is interesting at the moment. I hear rumbles of big outside interests buying up blocks of land with the idea that such farms can be managed by a management board sitting in comfortable boardrooms in high office towers. Now, to be honest I have no facts about the actual deals so you better take this article with a grain of salt.

What spurred me to write this was coffee shop gossip and a meeting with one of my downtown high rise financial advisors. He was quizzing me about agriculture and the investment potential. His tale was that margins in farming have been razor thin for decades, but that is changing as grain prices have been on a roll. So big money interest should be able to get into the game by buying up land and hiring professional management.

My answer to him was this: Yes, margins in grain farming have historically been razor thin. Yes, there was a brief period of time when margins were better. No, this is not going to last.

And the reason is this: As soon as margins get decent, costs of inputs rise to the challenge to keep margins razor thin. A prime example was 2008 when fertilizer prices went through the roof. Remember $1,400-per-tonne phosphate and the “rush” to buy it up before it hit $2,000.

As long as we have a completely open system where we take what we can get in the marketplace and accept what we have to pay on the input side, the margins will always be thin.

Not long ago an attempt was made to form a wheat cartel. There are only five major wheat-exporting countries in the world, so it should be possible to get them to hold off selling the wheat to force up the price — just like OPEC does for oil. I said at the time that it would not work for a very simple reason: The last time I had 10 farmers in one room at one time it was difficult to get all to agree that today is Monday! That is not a criticism, just a statement of fact. Farmers are independent minded (pig headed) and do their own thing. “You do yours, I’ll do mine” is a common refrain. And that is why they survive.

And only the good farmers will survive. Of course, there are many successful family farm corporations, but the decisions are all made on the fly by the people who do the work and have their nickel in the pail. The decisions farmers make on any given day throughout the growing season and harvest are what make or break a grain operation.

It is quite possible to sit around in a comfortable office in the winter and lay things out in great detail on paper. But the grain in the bin and hence the money in the bank only happen when the important decisions are made on the fly in the heat of the season. On any given day, farmers start out with Plan A but by noon many are off on Plan C or D. Mother Nature is wildly unpredictable and is always in charge. All we can do is react in the best way to the curves the weather throws at us. Such action does not happen if the operator has to wait for approval from Toronto before changing plans.

In some areas, farmland prices are being bid up by farmers themselves rather than outside interests. But not always. In the 1970s, doctors and lawyers from Saskatoon were busy buying up land near town for $500 to $1,000 per acre. I combined some of that land. Some kept it for 10 years and sold it for $250 per acre in the late ‘80s and early ‘90s.

Outside interests better be careful. Farming is not for the faint of heart.

J. L. (Les) Henry is a former professor and extension specialist at the University of Saskatchewan. He farms near Dundurn, Sask.

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Les Henry

J.L.(Les) Henry is a former professor and extension specialist at the University of Saskatchewan. He farms at Dundurn, Sask. He recently finished a second printing of “Henry’s Handbook of Soil and Water,” a book that mixes the basics and practical aspects of soil, fertilizer and farming. Les will cover the shipping and GST for “Grainews” readers. Simply send a cheque for $50 to Henry Perspectives, 143 Tucker Cres., Saskatoon, Sask., S7H 3H7, and he will dispatch a signed book.

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