2024 Saskatchewan Farmland Study

[wheatking16]

Thanks for the work you put into this, and posting it for public consumption. I've been looking forward to it since you first told me you were going to apply TA to the land market.

Seeing the values normalized for 2023 dollars, the lows have never been revisited, it has been within a steady uptrending channel the entire time. This is in contrast to commodities priced in constant dollars, most of which would be in a declining channel over the long run (feel free correct me if there are exceptions).

The ultimate value of the uptrending land is producing downtrending commodities. Does that seem sustainable?

Productivity has increased, with continuous cropping, fertilizer, chem, mechanization, so perhaps it is reasonable that land could be in a continuous uptrend, while the commodities produced are in a downtrend?

Or will the two trends eventually need to converge? “If Something Cannot Go on Forever, It Will Stop“

My bigger question, is how does an investor or farmer make use of this?

If the cycles within are decades longer than the average career, how does one take advantage of it? Realistically, there might be only a couple of decades in ones career when one might be in a financial position to take on such an investment, and before it is too late in life to take on a 25 year mortgage.

If that period doesn't coincide with the right part of the price cycle, what does one do?

Perhaps more relevant to an investor who can park their money elsewhere, and rotate into or out of farmland when the cycle indicates an opportunity. But for someone trying to make a career out of producing something on farmland they own, it seems to me that all one can do is buy when the opportunity presents itself, with a business plan to cash flow the cost of the land, not banking on inflation to make it viable.

If the land doesn't cash flow at the current value, without counting on inflation, then it wasn't a viable business plan to begin with, or the land value wasn't sustainable?



?

The ultimate value of the uptrending land is producing downtrending commodities. Does that seem sustainable?

Productivity has increased, with continuous cropping, fertilizer, chem, mechanization, so perhaps it is reasonable that land could be in a continuous uptrend, while the commodities produced are in a downtrend?

I really don't know, but we assume trends will continue as long as they stay intact. Also, one must consider their timeframe. The study documents several significant downtrends within the longer uptrend.

I also bet on human innovation and discount talks of "peak" productivity.


Or will the two trends eventually need to converge? “If Something Cannot Go on Forever, It Will Stop“?
I believe that land values are not solely determined by commodity prices and instead are a function of a complex series of ever-changing factors.

Simplistic answers do not answer complex questions.

My bigger question, is how does an investor or farmer make use of this?
IMO, given enough, all asset prices follow similar patterns, i.e. 4-Stage and 8-Wave structures, so I anticipate farmland is no exception.

The easiest way to create value is to let your winners run and cut your losses short.

Be aware that trends change and returning to previous price levels can take longer than one likes or can afford.

When the values roll over and the probability of a downtrend increases, take appropriate action based on your situation.

If the cycles within are decades longer than the average career, how does one take advantage of it? Realistically, there might be only a couple of decades in ones career when one might be in a financial position to take on such an investment, and before it is too late in life to take on a 25 year mortgage.
I'm not sure how to answer this question, but I'll try.

Knowing one's timeframe is essential, and timing is EVERYTHING. The worst part is finding out the assets are worth less than the debt. Those who started farming in the last 10-15 years have had a far easier go than their parents did, or those who started in the 80s.

Those who sold in the late 70s early 80's did well.

Those who sold in the 90s and early 2000s, did not.


If that period doesn't coincide with the right part of the price cycle, what does one do?
There is always a bull market somewhere.

If the land doesn't cash flow at the current value, without counting on inflation, then it wasn't a viable business plan to begin with, or the land value wasn't sustainable?
I will argue that, over the past 100 years, farmland has not generated positive or adequate cash, flow more often than not.

A farm land investor recently told me that rents are half the interest cost on a new purchase.

Some ideas, maybe read between the lines a bit.

Food for thought.?

[wheatking16]

Land value inflation doesn't pay the mortgage, what it produces does.
In my opinion the only thing land value appreciation has done is enabled people to dig a bigger hole(borrow more money against it). Unless you're borrowing against it's value, it really doesn't matter if it's $50K or $500K per quarter until its sold, if its ever sold.

Watch the values drop if the assets liquidity becomes a problem for people(especially investors) wanting to sell.

Weber's newsletter pointed out a Sask farmland disadvantage in returns.
Alberta land was higher from a robust oil industry injecting cash into people's pockets and that money sloshed around looking for a home. Add in some surface rights and mineral rights and it can be pushed further, oh yeah and more people.
Manitoba appears to have a clear production(growing crop) advantage.
Sask grain prices can even be discounted because of extra freight to port in basis deductions.

Tim shares FFC charts depicting the change in SK Land affordability in our video.

[wheatking16]

An important fact which is missed by many people.

Probably the best quarter in this county was offered to me by the retiring farmer when I was probably 20 years old. Price was even more of a premium than the quarter was premium because of the potential gravel development.
I declined because I needed to pay the mortgage either with what it was producing or what I could make off the farm at the time. I couldn't pay the mortgage with the promise of gravel development 20 years later.

It did sell. And 20 years later sold again to gravel interests for a healthy profit.
Coulda woulda shoulda.

But how do you cash flow the sure thing in the intervening 20 years?

Old money

[blackpowder]

Great conversation.
Thank you Trent.
I saw people who sold in the late 70s early 80s who didn't do well because of inflation. Money has to stay working.
As someone who has heard all his life that land prices weren't sustainable. I agree there will be a 50% correction. But from where and when? Charts are historical. Half of $6000/ or half of $9000/?
Operations who have doubled every 15 years for the last 45, have always had a sound business skill set. And, as always, there is more to the price of land than the price of wheat.
I'm not buying more and no one without kids farming is either.
Values still important however as I'm putting the equity to work elsewhere.
Throughout it all sound financial literacy the most important asset.

[blackpowder]

A5. A similar gravel story.
Uncles offered a known reserve.
Passed cause it was too far to farm lol. Buyer paid for it year one. It's now reclaimed and still worth ag retail.
Lesson? Get off the farm! Lol.
Money to be made accessing off farm people.

[wheatking16]

Great conversation.
Thank you Trent.
I saw people who sold in the late 70s early 80s who didn't do well because of inflation. Money has to stay working.
As someone who has heard all his life that land prices weren't sustainable. I agree there will be a 50% correction. But from where and when? Charts are historical. Half of $6000/ or half of $9000/?
Operations who have doubled every 15 years for the last 45, have always had a sound business skill set. And, as always, there is more to the price of land than the price of wheat.
I'm not buying more and no one without kids farming is either.
Values still important however as I'm putting the equity to work elsewhere.
Throughout it all sound financial literacy the most important asset.

Yeah, I have stated several times that I don't know at what level the correction will begin.

While the price is at a level of interest to me, I can make a case for another 22% appreciation.

The WP article touched on it, and I briefly mentioned that level in response to Tim's question.

Look closely at the chart in the video, and one can see a horizontal line at the 3184 level.

That level holds significance from a technical perspective and aligns well with a 61.8% retracement to the 1981 level.

Of course, none of it has to happen.

The study aims to alert individuals to signs of a correction and help them prepare.

[AlbertaFarmer5]

If that period doesn't coincide with the right part of the price cycle, what does one do?
There is always a bull market somewhere.?


That is great advice to the investor.

I'm looking at it from the completely biased perspective of myself as an aspiring young farmer whose sole purpose in making capital was to turn it into a viable farm.

In retrospect, as it turns out I was born at the right time, I might have missed out on the opportunities at rock bottom in the late 80s and early 90s. But have enjoyed the ride up ever since. Even if at the time, I kept lamenting that I had missed the opportunities by half a generation.

I am questioning what I would do today if I've been working and investing my entire life and finally was in a financial position to fulfill my dream. And that timing coincides with what may turn out to be the high in the land market, not to be exceeded for the rest of my productive lifespan.

Would I wait for the next cycle to start?

My 91-year-old neighbor who was born on a farm in the dust bowl during the depression, after retirement, bought a farm next door to us with the dream of farming. Still trying to make the dream a reality.

As it turns out, some of these things are much easier and more fun to do at age 30 or 40 then 80 or 90.

[farmaholic]

I also bet on human innovation and discount talks of "peak" productivity.

With all due respect, human innovation cannot replace precipitation, except of course irrigation. Alot of times, precipitation is crop yeild's limiting factor. Most times not enough sometimes too much.

Technology isnt always greater than common sense.

Control what you can control, the "spend".
Calculate risk.

In my opinion, the last 15 years' increase in value of farmland has been nothing but a real estate play, not so much based on making a living farming it. That might be over in the short term but the long long term still might be a good investment, if you have time left or are thinking generationally.

It's become cheaper to rent it than buy it so in the last while the investor enjoyed the lands appreciation while the serf farmer was able to farm it cheaper by renting it than buying it.
In my opinion the sad part is land prices in many many cases were driven higher by what I call non-ag money. What would farmland values be if it was based on what it could produce, maybe with some cross subsidization with already paid for land's profits.

I bought my first land in 1986, bought more in 2004 for basically the same price... same kind of land, half a mile apart. There was a correction in that time too, this time the cost of the correction/acre may be the per acre price paid in 1986 and 2004...

[AlbertaFarmer5]

I will argue that, over the past 100 years, farmland has not generated positive or adequate cash, flow more often than not

Grandpa referred to an era in the twenties where land would pay for itself in one crop. That was where he grew up, much further east of here.

Second hand information from this area indicates there was a period where one crop was worth more than the land as well. That would have been before the decades long cooling trend started after world war ii. When this area went back to predominantly livestock instead.
When we were combining in the fall of 2022, I recall thinking that the gross from that crop was worth more than I had paid per acre on my first purchases.

[Grahamp]

Take the money values away (with rampant inflation they are useless anyways) and think in terms of economic units. You inherit a 3000 acre farm with paid for machinery and some working capital when you are 30 in 2010. You farm in 40 BPA canola, 60 bushel wheat country in Saskatchewan. You had $12 dollar canola in 2011 with $150 dollar costs. You made $330 an acre or roughly $500000 on 1500 acres and the wheat we’ll call 60 bushels at $6 with $120 costs. so you make $240 an acre so $360,000 on the wheat . The machinery depreciated but not a cash cost. So you have $860,000. You pay yourself $100,000 and have $760,000 to buy land. You buy 3-4 quarters.(2010 ish prices)

You rinse and repeat this through the 2010’s and while you can’t do it every year and you need to replace machinery every now and then find yourself in 2025 with 7000 acres. Buying 3.5 quarters every other year. So now today you have 7000 acres but your costs have doubled to $300 per acre on the canola and $240 on the wheat (again because land and machinery are paid for). You grow a 40 bushel canola crop at $16 so you make $340 an acre on 3500 acres roughly a million and your 60 bushel wheat at $7.5 makes $700,000. So the farm allows you to buy around 3.5 quarters at $500,000 per quarter.

Erase all the dollar amounts and the very simplistic version of this is every other year you can buy 3.5 quarters from the value the farm creates. Yes it’s less because the farm size has doubled but I think most people would look at farming the year and getting to add 2-4 quarters a pretty good deal. And this is what I think keeps land values up, the enormous benefit of starting with a paid for farm. And I think every area has enough of
them to keep prices from dropping. There may be exceptions, 10 year droughts etc but if your waiting for land to drop 1/3 - 1/2 before you buy I don’t think you’ll ever get any.