SOILS AND CROPS
I had a run at this topic about three years ago but recent events suggest it should be replayed.
Many recent farm press articles have outlined major changes in land tenure on the Prairies and there is great excitement about land prices. Saskatchewan has traditionally been the low price point for land — partly because we were dealt the largest chunk of dry-belt land and partly because of our political history. Not long ago only Saskatchewan residents could own Saskatchewan farmland but that has been changed. Now, all Canadians can own a piece of this province.
There is more evidence of outside, big-moneyed investors buying up Prairie farmland, particularly in Saskatchewan where it is the cheapest. The graph (Figure 1) shows Saskatchewan farmland prices from 1926 to 2009.
Outside buyers are playing a role in the recent value run-up, but all too often farmers do it to one another. When there is finally some profitability in cropping why do we capitalize it in higher land prices? Be very wary about assuming land will only appreciate in value.
A quick look at Figure 1 shows that farmland values can and do drop like a rock when crop prices drop and interest rates rise. We hope that grain prices are headed for a period of continued high prices, but we have thought that many times in the past and it never came to be. We have also gotten so used to low interest rates that we think they will stay low for a long time yet. Maybe not.
If we examine the historic wheat prices put in constant dollars, it is not a rosy picture (see Figure 2). Peaks in 1917, 1945 and 1973 have all been followed by big declines. And we note that $10 per bushel in today’s dollars is no big deal in historic context.
What will happen when wheat prices drop back to $3/ bu.? (Note: I use wheat only because it has the historical data and grain prices tend to follow one another in a general way). If crop prices drop sharply and interest rates rise we could easily be back in a big mess.
As for the outside investors — they will soon tire if good rents are not forthcoming. In the 1970s, Saskatoon doctors and lawyers bought up farmland around here for $500 an acre, kept it for 10 years and unloaded it at half the price.
I think the outside investor and huge leased acres are a very disturbing trend. My grandfather came to Saskatchewan to own land, not to be a sharecropper. It is one thing to rent land from a farm family that has no one interested in farming, but quite another to rent from a big company that sees land only as a cash cow.
Let us not forget the lessons of the past and be very cautious
about taking on huge commitments based on crop prices that might not be sustained for long. Many are saying it is different this time, that the world has all those mouths to feed. That has been said many times before.
extensionspecialistattheUniversityof Saskatchewan.HefarmsatDundurn,Sask. Healsorecentlyfinishedasecondprintingof “Henry’sHandbookofSoilandWater”,abook thatmixesthebasicsandpracticalaspectsof soil,fertilizerandfarming.Leswillcoverthe shippingandGSTforGrainewsreaders.Simply sendachequefor$50toHenryPerspectives, 143TuckerCres,Saskatoon,SK,S7H3H7,and hewilldispatchasignedbookposte-haste