Why land is worth much more some places

[AlbertaFarmer5]

In the land price thread, it was suggested that perhaps the lower priced land might be lower priced for a reason, and vice versa. The free market at work.

So I looked at the crop insurance numbers for AB in 2019.

The highest yielding crop risk area's average wheat yield was 4 times the lowest, canola more than 3 times, barley, peas similar, oats 5 times etc.

Fixed costs aren't that much different. Seed costs, pesticide costs ( possibly even much higher in drier areas from producers I've talked to), seeding and application costs, labour (harvest excepted) all very similar regardless of yield expectation. Only fertilizer and possibly fungicides and amendments are much lower in the lower yielding areas.

All those marginal bushels above the input costs can and probably do get bid into land prices.

Using the canola yields mentioned above, using a $10/bushel, the highest yeilding area had $350 more dollars per acre minus some additional fertilizer to bid into the price of land. In 10 years time the difference between $1500 land and $5000 land is already paid for, not including interest, extra fert etc.

Suddenly the $5000/acre land doesn't look so out of line.

Grossly over simplified, but stark nonetheless.

2019 may be an anomaly, but the previous years didn't close the gap very much either.

I assume Sask variance between areas would be similar?

[bucket]

In the land price thread, it was suggested that perhaps the lower priced land might be lower priced for a reason, and vice versa. The free market at work.

So I looked at the crop insurance numbers for AB in 2019.

The highest yielding crop risk area's average wheat yield was 4 times the lowest, canola more than 3 times, barley, peas similar, oats 5 times etc.

Fixed costs aren't that much different. Seed costs, pesticide costs ( possibly even much higher in drier areas from producers I've talked to), seeding and application costs, labour (harvest excepted) all very similar regardless of yield expectation. Only fertilizer and possibly fungicides and amendments are much lower in the lower yielding areas.

All those marginal bushels above the input costs can and probably do get bid into land prices.

Using the canola yields mentioned above, using a $10/bushel, the highest yeilding area had $350 more dollars per acre minus some additional fertilizer to bid into the price of land. In 10 years time the difference between $1500 land and $5000 land is already paid for, not including interest, extra fert etc.

Suddenly the $5000/acre land doesn't look so out of line.

Grossly over simplified, but stark nonetheless.

2019 may be an anomaly, but the previous years didn't close the gap very much either.

I assume Sask variance between areas would be similar?

I can't argue the comments because for whatever reason it always works on paper.

[Sheepwheat]

There is more to it than production capability by far, IMO. Urban pressure, Hutterite presence, how well heeled the btos are, foreign investor pressure.

There is land far less productive than ours, selling for far and away more than our area. I would wager that we are probably one of the most potentially productive long term areas, and have probably among the lowest land values around.

Land prices are double what they are here, half an hour west of me. Lower long term yields. But they have hutterites, bigger btos, and Chinese investment.

Land productivity is a factor to an extent, especially quarter to quarter in a given area.

Around here, even with higher yields generally, ( take out the wet years, I see them as an anomaly), and lower land prices, it still barely pencils IMO.

[Guest]

supply management

[makar]

Many who sold elsewhere and bought here realized why very fast, one quote i recall after 25 bu oats, well i didn't need fertilizer were i came from.

[makar]

Another dork in the 80s sold one irragated 1/4 and bought 3 here, thought he was a genius, well he bought half bush of marginal land, cousin bought it 20 years laler for 2/3.

[makar]

Another dork in the 80s sold one irragated 1/4 and bought 3 here, thought he was a genius, well he bought half bush of marginal land, cousin bought it 20 years laler for 2/3.

Even more stupid a landman was talking about drilling a well so buyer fronted the oil well money, well never happened.

[GDR]

In the land price thread, it was suggested that perhaps the lower priced land might be lower priced for a reason, and vice versa. The free market at work.

So I looked at the crop insurance numbers for AB in 2019.

The highest yielding crop risk area's average wheat yield was 4 times the lowest, canola more than 3 times, barley, peas similar, oats 5 times etc.

Fixed costs aren't that much different. Seed costs, pesticide costs ( possibly even much higher in drier areas from producers I've talked to), seeding and application costs, labour (harvest excepted) all very similar regardless of yield expectation. Only fertilizer and possibly fungicides and amendments are much lower in the lower yielding areas.

All those marginal bushels above the input costs can and probably do get bid into land prices.

Using the canola yields mentioned above, using a $10/bushel, the highest yeilding area had $350 more dollars per acre minus some additional fertilizer to bid into the price of land. In 10 years time the difference between $1500 land and $5000 land is already paid for, not including interest, extra fert etc.

Suddenly the $5000/acre land doesn't look so out of line.

Grossly over simplified, but stark nonetheless.

2019 may be an anomaly, but the previous years didn't close the gap very much either.

I assume Sask variance between areas would be similar?

Future potential is pretty big consideration also, most of the "better" land is in areas that has higher population. Land that is 3 hours from a Costco is gonna fluctuate more with farm economics. An hour away and it really doesn't matter what grain prices are because there is a much more diverse range of potential buyers.

[AlbertaFarmer5]

Future potential is pretty big consideration also, most of the "better" land is in areas that has higher population. Land that is 3 hours from a Costco is gonna fluctuate more with farm economics. An hour away and it really doesn't matter what grain prices are because there is a much more diverse range of potential buyers.

True, along with the points brought up above. But potential future value doesn't contribute to making it cashflow in the here and now. For a farmer.

A speculator who has capital or an income source elsewhere, completely different story.

I regrettably turned down a prime quarter that also had massive aggregate potential. I was quite young, in debt for existing land, and everything had to cashflow itself. The future potential of that gravel didn't help make payments in the first 15 years, which is how long the buyer held it before selling it for gravel for a considerable profit.

[shtferbrains]

Gravel pit is the perfect retirement income!

[farmaholic]

Gravel pit is the perfect retirement income!

Lots of land got discounted for grain farming purposes if it was coarse. I passed up on a pasture quarter about 10 miles away because it was "light"...... and because the guy I knew selling it was going through a divorce and I didn't want to pay what he was asking, didn't want to look like a vulture and chisel him during that tough time.....so I passed. It is currently being "mined" right now, there was a mountain's worth of gravel there. Oh well....

A drawback of a spent quarter after gravel removal is you're left with a moonscape. What's the value of it after its been mined of all the good gravel?

[farmaholic]

You can clearly see the quarter boundaries. The activity to the north and west happened first.