Land prices?

[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.

[ASRG]

Just to clarify rent in that $80 range:
There seems to be three general methods in my area.
1.- A straight cash rent. Money up front before the cropping year
2. 22 bushels of feed barley (no matter what crop is grown or yield) paid out on an agreed pricing date (usually Jan 1 after the fall harvest) Example this year: $3.75 X 22=$82.50
3. 1/3 of crop to landowner minus one third crop inputs(fert,seed &spray). Some marketing options available. For example: canola 55 bu X $12.85=$706.75 divided by 3 =$235.58 -1/3 expenses....or feed barley 100 bu X $3.75=$375-1/3 expenses.
....incidently I do the 1/3 thing with my cousin and it has worked out fairly well, probably better than the first 2 options....I can participate in 1/3 crop insurance...but I also take a risk in a falling market.