Land value appreciation

[grassfarmer]

Further to a thread posted earlier I got to thinking about land as purely an investment. Land always looks cheap historically compared to now. Small sums invested buying acres years ago look pretty good now - but will this trend continue?
In my own experience we sold one farm in Europe for the equivilent of $2000 an acre that had cost my Dad $90 an acre 35 years before. These look like huge gains but in reality equate to a compounded interest rate of a little over 7%. Not a bad return but one that could probably be bettered quite easily in other investment sectors especially when you factor in the lack of liquidity of farmland as a saleable asset.
If I were to buy land at $1500 an acre today it would need to grow in value to $16,000 an acre in 35 years time to attain the same 7% compounded interest - is that likely outside urban fringe areas? Can anyone tell me they think farmland on the Prairies will be worth that much in 35 years time?

[coppertop]

grassfarmer when we look back at where urban fringe areas were 35 years ago, and look forward to where they may be if the growth of the province continues then who can say what land in areas a significant distance from today's urban centres will be worth.

For instance, my farm is located ten miles from an urban centre of 6000 people. There is a little hamlet five miles down the road where there were approximately 50 people living in 1972 when we purchased this farm.

Now there are 550 people in the hamlet and numerous country residential developments between it the area around the town, putting approximately 4000 people in the urban fringe. I am astounded at what land is selling for in my community where the land is best suited to forage and pasture,not prime grain growing land.

I think that in years to come land not close to urban areas will be worth a considerable amount for recreational purposes as cities get larger and more and more urban folks want to get away from the crowd and noise.

It seems as though money is no object for folks that want a small piece of heaven somewhere.

[cowman]

I don't know about 35 years, but suspect in the next few years it might be okay...depending where you are? In the last ten years or so we have seen land prices in this area come close to tripling!
But the fact is this land value appreciation is not due to profitability in the agricultural sector? A booming economy and an influx of wealthy European farmers has driven land prices?
Eventually though some sort of reality has to return to the market...speculation can only take you so far? I think there are some realistic opportunities for land actually being able to pay for itself...but doubtful if it is in Alberta!

[cowman]

Oh by the way...have a neighbor who is pasturing his cows up near Buck Lake this summer for $17/month/cowcalf pair...while he rents out his own pasture for $65/acre to some outfit running yearlings! Can anyone afford to pay $65/acre to run yearlings on?

[grassfarmer]

That's an interesting idea you have given me Cowman. Your neighbours land should be well worth $65 an acre with a bit of management. Poduction of 120Auds per acre based on 1100lb c/c pairs translates into 160 yearling days per acre (yrlg = .75Aud)so the $65/ acre rental results in 40.6 cents a day grass cost for the yearlings. At 2lbs a day gain that is 20cents/lb of gain.
I was up near Winfield last week and their is a pile of rental pasture available or about to become available up there. Maybe I should ship a couple of liner loads of cows up there next summer and run yearlings at home? I could probably improve my margins by $80 per cow before transport costs using your $65 and $17 values.

[cowman]

Well I'm not sure how good the management is with these particular yearlings, but someone must figure they can make a buck at it? It looks to me these cattle have pretty well got the pasture chewed down.
I have another neighbor who used to send 25 cow/calf pairs up to the community pasture at Cynthia but finally quit because he never got 25 calves back! Seems a couple disappeared every year...although one turned up in a feedlot around Calgary about a month later! I think he had his grazing fees and trucking costs figured at $21/month but that was a few years ago before fuel got so pricey.

[cowman]

Oh and incidently grassfarmer tis neighbor who has the cows up at Buck Lake says there is lots of cheap land for sale up there. Apparently a lot of the grass renters have disappeared over the last few years as the cow/calf business went in the tank? You might want to check it out?

[coppertop]

Cowman, the land is a lot cheaper in the Buck Creek, Drayton Valley area than it is in central Alberta but I don't think there is a lot of cheap land for sale.

A couple of wheeler/dealers purchased a significant amount of land to either subdivide or rent it for pasture, and the demand for pasture land has certainly decreased.
Some people that have sold their cattle, rent their pastures out and those are snapped up because there is usually a good watering system and cattle handling facilities in place.
The Pembina Grazing Reserve did have significant managerial problems for a few years. The pasture manager was off training horses across the country and wasn't paying attention to business,and the Board had to let him go, which caused a stir because he had a few buddies as pasture patrons. The pasture has a full compliment of cattle every year so there must be still those who will take advantage of the opportunity for subsidized grass.
Many of the cattle come from a long distance away.

[cswilson]

Geez I thought all it took was one clinic and a border collie to become a custom grazier-the guys that are good at it are pretty few and far between but are worth every penny they charge-once they learn the clients cattle aren't for starting rope horses,training dogs or killing trees things usually go pretty smooth. I unfortunately had some cattle grazed in one of those pastures with disappearing yearling syndrome-only needed that lesson once.

[smcgrath76]

Won't a CCIA tag vaccinate those calves against that syndrome CS? LOL!!!

I think that land can be a good investment. If I had spare cash for investing purposes, I might invest in land locally. For our operation, and looking at land in perspective of "for agriculture" the ag business won't cash flow the payments, thus meaning land payments must be funded from outside of the business. Not a good investment in terms of our core business. Possibly a good investment in terms of being a real estate investor.

I know what I made on funds I have invested elsewhere last year, and I know how much time it took me. From a pure investment perspective I think there are better investments than real estate, although potentially more risk.

[cswilson]

Like Nortel lol.

[coppertop]

now now now cswilson, don't you go undermining those of us who have BORDER COLLIES !!!!!
I certainly agree that owning one does not make a person a rancher or expert in livestock but it does make one get more excercise !!!

[cswilson]

Ohhh a good hand with a dog is a wonderful thing-too bad it's a rare and wonderful thing lol. My point was that alot of people set themselves up as custom grazers when the don't have the expertise to do a good job-trust me running yearlings properly and profitably isn't easy.

[coppertop]

I agree with you cswilson.

[Incognito]

Enlighten us, Tom!
Who was it?