A number of companies are using investor money to buy farmland and rent it back to farmers. Assiniboia Capital Corp based in Regina is considered the largest on the Prairies, with about $75 million in assets. They now own more than 110,000 acres of farmland in Saskatchewan, an area of 172 square miles.
However, an individual investor from Edmonton claims to own 100,000 acres in Saskatchewan and there are an untold number of smaller investors.
For investors, the appeal of the Assiniboia approach is that the land base is spread across the province, providing some geographic risk mitigation from events such as floods, drought and frost.
Brad Farquhar of Assiniboia Capital Corp recently spoke to Ag Days in Brandon. Although the company hasn't been active in Manitoba, a large crowd turned out to hear him speak and it has spurred extensive discussion among producers and in the agricultural media.
More recently, Farquhar spoke to the Young Ag-Entrepreneurs conference in Saskatoon, repeating the pitch that farming and land ownership are not inherently the same.
"Do you want to farm 3,000 acres and own it all or farm 10,000 acres with most of the land rented?" asks Farquhar. "To be Wal-Mart, you don't need to own any buildings. What are you, farmers or real estate investors?"
About 40 per cent of Assiniboia's business involves purchasing land and leasing it back to the original owner. The farmer can sock the money away for eventual retirement or can upgrade equipment, rent more land and become a larger farming entity. As Farguhar points out, the return on equity can actually be improved by owning less land.
Being so active in the land and rental markets, Farquhar has strong insights into what's happening with land prices and cash rents. Overall, he thinks Saskatchewan land values are up about three per cent in each of the last two six-month periods, which is the estimate published by Farm Credit Canada.
However, he says some land in east central Saskatchewan is selling for less than its municipal assessment, while other areas are more than two times assessment. The province-wide average is about $515 an acre, but he is seeing prices in the $1,200 to $1,400 an acre range on Regina heavy clay.
In Farquhar's judgment, land values are rising a bit faster than cash rents. Rents are more affected by wetness concerns. While sale prices for farmland are a matter of public record, determining land rents in an area requires talking to a bunch of landlords and tenants since there's no published data.
Five years ago, when farmland investment companies first burst onto the scene in Saskatchewan, it was comforting to know that outside investors believed in the appreciation of farmland values because by extension that meant they had confidence in the profitability of agriculture.
These days, it's a lot easier to find analysts, investors and farmers who are positive about the future. Accordingly, there's a shift in attitude regarding outside investors in farmland.
Investor groups like Assiniboia pick and choose their land deals and try to maximize their value. While they don't like to be viewed as a driving force behind land values, there's little doubt that they contribute to the competitive environment and are having an influence.
That certainly doesn't endear them to producers who are trying to expand their operations.
There's also an increased wariness over selling your land and renting it back. If it's a good deal for investors to own farmland, why isn't it also a good idea for farmers to own their land as an investment?
If land values continue to escalate as predicted, expect even more interest from outside investors, which in turn means even bigger chunks of ground that may never again be owned by farmers.
Kevin Hursh is a consulting agrologist and farmer based in Saskatoon. He can be reached at [email protected].
