by The Star Phoenix | Published February 9, 2022
With commodity prices sky high and interest rates low, farmers will be looking for extra acres wherever they can find them.
I’m going to stick my neck out here and suggest that farmland is in for another surge in interest and rising prices.
Unsurprisingly, the rate of increases sagged in the first half of 2021 as farmers priced in the apparently looming drought. Land sales tend to be strongest in the spring — also unsurprisingly, since buyers want to bring the acres on in the coming growing season — so the early-year drop was likely indicative of the full year.
At the time, Olivier Biron, Farm Credit Canada’s manager of valuations, said, “The average increase of 1.8 per cent for the first six months of 2021 and 3.5 per cent on a 12-month basis represents the lowest increase in the last 15 years.” And indeed, the huge increases of a few years ago had petered out over the past while.
That’s not, perhaps, a super strong start for my thesis, but bear with me.
Several factors indicate that Saskatchewan farmers and their commodities are going to be even more important in future — not just to our economy, but to others — than ever before.
Before I get into those factors, witness the recent sale of the Hanson farm near Torquay, Sask. The massive farm sold for $416,000 per quarter section, or about $2,600 per acre, according to a story on allSaskatchewan.com. Not only that, but the farm’s machinery and other assets were also snapped up, while bidders showed up from 30 countries.
According to auctioneers Ritchie Bros., the land value was a record for the area.
Meanwhile, in a global state of low crop stocks and supply chain disruptions, crop prices are impressively, perhaps crazily high. In the third quarter of 2021, for example, canola leapt to $935 per tonne — 90 per cent above the five-year average of $490. Spring wheat brought $420/tonne, well ahead of the $240 average.
In late January, Farm Credit Canada noted that “land values are also expected to have risen as producers respond to high commodity prices and low interest rates by vying for more acres.”
And, while the drought has not yet officially broken, significant parts of Saskatchewan are under a beautiful blanket of the white stuff.
While I grant you crop prices and snow cover are short-term indicators (for the former, especially in the middle of a pandemic) canola particularly has some long and powerful legs.
Canola crush capacity just in Saskatchewan has practically gone haywire. In the last year, the big ag companies Cargill, Viterra, and Ceres have announced new facilities, while Richardson International said it would expand its Yorkton plant. Most recently, the biodiesel and canola crush whopper announced by Federated Cooperatives Ltd. and AGT Food and Ingredients added even more capacity.
Canola is no longer just a healthy food crop for humans and animals. It’s part of the world’s battle to find and produce renewable fuels.
The question now is whether farmers can keep up. They have to stick to crop rotations to protect the soil and avoid problems such as pests and diseases; canola-snow-canola is not an option. But I think they’ll be looking for extra acres wherever they can find them.
It is also true that farmers are facing enormous challenges right now. As crop prices have risen, so have the costs of fertilizer (which has soared), energy, machinery, parts and other inputs. Interest rates are poised to rise any moment. Timely rains in the growing season will be crucial, even if the snow cover starts the season well.
And the huge question, the biggest one of all, is climate change. As John Pomeroy, Canada Research Chair in Water Resources and Climate Change at the University of Saskatchewan, told The StarPhoenix in late December, this last drought’s vastness was an extension of a drought that’s been brewing for 10 years and was the worst in the last 1,200 years.
“That makes this climate change. It’s just unprecedented events. This is not like the 1930s, ’60s or ’80s, or any of these other droughts we had that were smaller in area,” he said.
Definitely the long-term fly in the ointment.
Nonetheless, farmers are optimistic, determined, technologically-savvy and entrenched. They will weigh the uncertainties against their practices and adapt to the extent possible.
They can see that the future is blindingly bright for our commodities. There are people to feed, vehicles to operate, and industries to run in a world that must reduce its pollution.
Therefore, they will buy land. Because even in Saskatchewan, we aren’t making any more of it.