Land prices?

[ASRG]

Recently good bare farmland (8 miles south of Red Deer AB) sold by auction for $5400/acre. Bought by a local grain farmer! The section west of me is for sale at $4400/acre (poorer land...but only a few miles from the $5400 land).
If taxes could be avoided and that $4400 could be invested at 6%/yr that would be an income of $264/acre/yr...the $5400/acre land would be $324!
Is there any crop that could ever produce a net return like that?
Are land prices this crazy everywhere?

[kato]

No. Around here the best stuff is around $1000, and everyone thinks that's too much. Some sold a couple of years ago for 1500, and it was the talk of the town. Some parts of the province are higher than others, like potato land or the vegetable land near Portage, but there's all kinds of land for a lot less.

No wonder we're getting transplanted Albertans.

[burnt]

S.W. Ontario is running from $6500 to whatever supply management guys will fork over. Prices have hit in excess of $12,000.

Even some cash croppers are getting in at that level with fond memories of last year and their $1100/ac. corn returns burning a hole in their pockets and their sense of reality.

This is separating the men from the boys. And we're not sure which of those is actually doing the buying . . .

[ALLFARMER]

The half section I just bought cost me $185/acre I have to clear it, then it will do 40/bu/ac canola. In Alberta land is doubling in value every 8 or 9 years.

[grassfarmer]

How much does it cost to clear land factoring in labor if you do it yourself? What is the anticipated profitability of 40bu/acre canola crops, given the high input costs and weather risk (frost, drought, flood etc)?

[gaucho]

I agree 100% GrassFarmer.... All farmer I don't know where you get your calculator but you will spend at least twice what you paid for that bush to get that land into working condition.... 40 bushel canola is not all profit and there are major risks growing that crop up there... I'd rather buy the land that just needs some TLC for $50-60 K and start making money the 1st year rather than waiting 3 before you get rid of the last roots.

[ASRG]

I should clarify that the land I'm talking about is more about "speculation"... rather than about agricultural value. The prices reflect "future potential" for developement rather than farming value?
However a lot of it is good land, deep black soil that will raise very good crops. The climate isn't the best (too short of a growing season)so that limits what can be grown.
Some farmers in this area have left for "greener pastures" in Sask., Manitoba, and northern Alberta in the last twenty years or so and what is left are fast becoming old men, who are just putting in their time....walking the mile!
Ten years ago I went out and had a look at eastern Saskatchewan, with the thought of land prices that might actually make sense, but decided it was too big of a change and risk at that time in my life.
Very early in life I had a plan to retire young enough to enjoy life a bit and I've always moved toward that goal....slowly but surely!

[per]

I wonder how much thought he put into ALSA and centralized land use planning. If that high value farmland gets on the agriculture side of the plan with no right to appeal it just became pretty expensive farm land.

[ASRG]

per: That is a concern.
On one level I hate seeing good land going into houses. East of Red Deer they are busy as bees building subdivisions....it almost makes you shudder seeing 4 feet of black topsoil being stripped off!
On the other level is the bottom line? who wants to see their property devalued by 80%!
I am always sceptical of governments? About three years ago the rural county I live in passed a "Land Use" bylaw designed to stop residential and commercial developement on the good "Ag B" farmland. Within two months the first "exception" came.....for a commercial waste transfer site for the county! Shortly afterwards another "exception" for a private commercial bio-gas waste plant. Then another for an ethanol plant. And finally an oil field industrial waste processing site...on a councillors property!
Land Use Laws are meant for the "little people" not the big shots!

[greybeard]

Clearing land was a common way to expand here in the 50's and early 60's but got just too tough to cash flow. There are still some old boys around this area that cleared most of their own and they are an independent bunch with a willingness to take on a loads of hard work. My FIL is 83 and has a little clearing project on the go but has trouble getting any help that shares his enthusiasm.
It was said that it was probably the third owner that was the first to make money on the last big land clearing project as the first 2 ran out of money before getting reliable production. Drainage can be a killer if water is coming in from the adjacent forest.
Although land may not provide annual returns like stocks it is often ends up being a better investment due to the appreciation in value that Allfarmer points out. Live poor, die rich.

[Ruken]

Interesting conversation here folks! I think its safe to say that the market value on virtually all of the land in Alberta is past it's agricultural value. That reminds me of listening to a custom feedlot owner doing a talk on five reasons people feed cattle. Only one of them was for making money. That's the same for owning land. Only one of them is for making a profit from agriculture.

[per]

Interesting point Ruken.

Lets start a bit of a list.

-Traditionally a good safe place to park money.

-pure speculation

-scenic value

-altruistic reasons... save habitat for something or other.

-Development

-Tradition... grew up on a farm, grampa's home 1/4...

-To make a living in agriculture.

[wd40]

Scuttlebut has it from good sources. China's pocket full of US coinage is getting rusty and moulding so their buying lots of land in Sask for 3 times the assessed value. Looking for arable acres minimum 5000 acres and don’t plan of actively farming.

I guess they know their reason for buying.

[farmers_son]

I note the numbers in the first post. See:

http://www.fcc-fac.ca/en/Products/Property/FLV/Spring2011/index.asp#ab

Semi annual land price increases in Alberta have been between 1% and 10%. Those are semi annual increases, multiply by two to get annual growth. Manitoba has shown consistent growth. The average value of farmland in Canada grew by 5.1% in 2010.

If you have a 25% down payment AFSC will lend you the money with no further security. Fixed 20 year money is 5.89% this week. In other words the annual growth in land values is nearly equal to interest rates. ASRG says in another post rent is $80 per acre or about 2% of land cost. And rents would be expected to keep increasing. Looking at the $4400 per acre land if we were to assume that rent will increase faster than land prices as operators with large equipment seek to continually expand than at a 10% annual increase in rent returns the property will completely pay its debt servicing with rent alone (assuming 25% down payment) in the 14th to 15th year.

Your only actual cash investment and your only risk is the down payment. Assuming the land increases in value by 5% annually the pay back period (from increased land values) on the down payment comes between year 4 and 5. If we are looking at a full quarter there may be an opportunity to subdivide out a parcel and cover a portion of the down payment that way.

The limiting factor for many people is they do not have the down payment and cannot see their way through to cash flow the payments 5 years much less 15 years. However it is incorrect to compare a land purchase which can be done without having all the money in hand to a cash investment at even 6% when of course you need to have all the cash to do that.

At $4400 per acre, using a 6% discount rate, assuming that farming it yourself you could do better than rent and return $120 contribution per acre which grows at 2% annually (and you do not have to buy any extra equipment) then the investment in land has a positive NPV of $750 per acre. In other words you would have to take $4400 cash plus an additional $750 cash and put it in the bank at an after tax 6% interest (if it was even possible to avoid the tax) to equal the land investment. And I think $120 contribution per acre on good land is being very conservative.

Of course land values need to keep increasing or you are somewhat inconvenienced. However your risk is limited especially after 5 years or so.

[ALLFARMER]

I paid $29750/quarter/ea for bush land (connected to mine) Open land is 160000/quarter that gives me 130,000 per quarter for clearing costs. I bought my own cat D6D a couple years ago for $37000 and my neighbour gave me his old v cutter. Fuel cost me $15/acre for cutting and $20 to $25 for piling. So I am at $6400/quarter for fuel. In the last 2 year I have spent about $5000 on minor repairs....turbo, & front idler and I welded on new ice lugs. I have very good native grass comming on the stuff I have very good native grass comming on this land so I will not plow & root pick but graze the land until I get finished cutting & piling. Already this year I have piled 145 acres and have 140 to go. Then It onto the new half section and then possibly another half section (connected also) if I can buy that at the next land auction. There are about 35 dozers clearing land in this area right now. Come Nov 1 we don't need a fire permit and about 200 quarter of land are going to be on fire. Just beside my place this winter 8 cats were working on one new area. They average 40 acres/12 hr/shift for $170/hr. Root piling hired is 85 to 90 hr.