It’s hard to acquire new dirt. Even if you can convince yourself that today’s spiking land prices are still affordable, competition from other farmers, developers and investors adds up to a red-hot real estate market. And retiring farmers aren’t necessarily selling their acres either, which leaves many young farmers counting themselves very, very lucky if they’re able to rent the acres they need to expand their farming operations.
But is renting most of your acres financially sustainable in the long run? For that matter, if the only other option is purchase, is that sustainable either?
To find out how farmers are expanding their land bases in a fiercely competitive farmland market, we went directly to those farmers, along with a farmer-turned-realtor.
Competing with the world for farmland
For 18 years, Jeff Kwochka was a full-time dairy farmer near the Saskatchewan village of Clavet, a short drive down the Yellowhead highway southeast of Saskatoon. But for the last year and a half Kwochka has worked as a real estate agent with realty executives Saskatoon while winding down the dairy business.
Kwochka had expected he’d mainly sell city houses, but finds there’s demand for realtors who have a good understanding of the business side of modern farming.
The market for farmland has changed, Kwochka explains, and increasingly, farmers have new competitors, including developers, speculators and investors.
“When somebody puts land up for sale now, basically the whole world is looking at it,” says Kwochka.
“The foreign investors, they’re not outrageous,” Kwochka adds. “They’re not expecting huge returns. They’re happy with three or four per cent returns on investment.”
Farmers around Saskatoon aren’t the only ones facing competition for farmland, of course. for instance, there’s Melissa Leischner, who returned to the family farm about half an hour east of Olds, Alta. last fall after earning her agricultural science degree and minoring in business agriculture at the University of Saskatchewan and spending seven years in Saskatchewan, working in the agriculture industry.
Along with farming with her father, she holds down a full-time job with Cervus equipment, Leischner says. “I can farm and I can still be an agronomist. I never wanted to do anything else.”
Leischner and her dad currently own about 70 per cent of the land they farm, renting the balance. As a young farmer, Leischner needs to expand if she wants to stay in the farming game long term. But expansion is easier said than done.
Even though it’s an hour to Calgary, commuters are buying, Leischner says, and others want land for ATVs or horses.
Leischner puts the average cash rent in her area at about $75 per acre. But six miles west of her farm, she says rent hits $120 per acre.
Of course, acreage owners, investors, and developers aren’t the only ones boosting farmland values.
The siren song of high grain prices over the last few years has lured more young farmers back to the land, and this new generation of farmers means more competition for the same piece of ground, says farmer Lee Markert.
“It’s so competitive, especially in a time when there’s enough unreserved capital floating around bank accounts that producers can afford to make those down payments,” says Markert. “It might almost break them when they do it, but they can do it. And there’s enough competition that you kind of have to be in the right place at the right time.”
Markert earned a management degree from the University of Lethbridge and interned with DuPont Canada before returning to the farm. Today he runs a seed retail business, Markert Seeds, with his parents, near Vulcan, which sits between Calgary and Lethbridge. He also farms his own land, most of which is currently rented.
“Gone are the days where a neighbour from down the road who’s retiring decides to phone you up one day and say, ‘I’m selling that piece of land for this amount of money. Do you want to buy it?’” Markert says.
Quick to sell
Even finding out about land coming on to the market can be tricky. Leischner says people in her area are very hush-hush about land sales.
“It’s quick to sell. You’ll hear something’s on the market on a Wednesday. It’ll be off the market by Friday,” she says.
Markert says farmers need a long-term perspective when looking for land. “You kind of have to identify who might be getting out of business in the next five years, or wanting to slow down, and sort of start to court them ahead of time in anticipation of when they’ll be renting it,” says Markert.
Both Markert and Leischner believe finding more farmland depends partly on building goodwill in the community. Leischner says it’s good to keep neighbours happy with you: “If they’re getting behind, I’ll send a combine over.”
Markert works with other farmers through the seed business, talking everything from varieties to disease. The end goal is to build a solid business, not endear himself to farmers on the hope that they might rent land to him in future. But if the opportunity comes up,“at least they might think of me.”
Both the Leischner and Markert families have long-term rental agreements with extended family and former neighbours. But they don’t take those relationships for granted either, and both have offered to pay more in cash rent before their landlords asked.
While some might shake their heads at the idea of offering more than a landlord is asking for, Markert and Leischner have sound reasoning.
“You want to stay competitive, too, so someone else doesn’t come rent it out from under you,” says Leischner. “You never know, right? Money drives a lot of things.”
When prices picked up, the Markerts also decided to offer more to their landlords. He says it helped build trust and assure the landlords they’re being taken care of. “And they kind of know you’re not trying to take advantage of them.”
Rent or buy?
Kwochka says land is always a good investment. “But if it stresses your cash flow, then it’s not, because you do need 25 per cent down to purchase land, or be able to use 25 per cent equity from someplace else to put towards that.”
In today’s market, cash flow can be a worrisome consideration. For his part, Markert says he’d love to own the land his family started renting last year. He’s at a relatively early point in his farming career, though, and he says he doesn’t have to flow to purchase a lot of land right now. But he knows his costs, and knows he can afford the cash rent.
Leischner isn’t necessarily willing to cough up the money to purchase farmland either. If a nearby piece of land comes up, she’s keen to buy. but otherwise, “at $4,500 an acre, I think I’m going to rent,” she says.
But renting most of one’s farmland isn’t necessarily financially sustainable, either.
Kwochka says renting provides an easy exit for farmers planning to retire in 10 years. But farmers in it for the long haul need to build their owned-land base every year, he says. That equity provides stability in the rough years, he adds.
Nor does Markert think leaning heavily on rented land is financially sustainable in the long run. “At the same time, you’ll probably need less actual physical land to make up that equity because the price of land has exploded the way it has,” he says.
Leischner is on the same page when it comes to rented land.
“Honestly, no. I don’t think a lot of rented land is sustainable,” Leischner says. But she adds the rental rate makes a difference whether it’s even sustainable in the short term.
“When you’re netting a whole 10 bucks an acre on a canola field at $120 an acre, that’s not sustainable,” she says. “You’re just farming it to farm it, not to make money off of it.”
Markert doesn’t jump at renting everything that comes on the market either. Along with price, he looks at the land’s productivity, whether it’s a block or lone quarter and how far it is from his current operation. He also tries to keep the emotion out of business decisions.
“And sometimes you decide, because it’s available, I don’t care what I have to pay but I’ll make it work,” he says. “And I think those are the situations where you end up having regrets in the end.”
Kwochka has noticed fewer farmers buying land, which he attributes to both sinking prices and grain movement problems. but that doesn’t mean land prices have dropped, Kwochka says.
And Kwochka thinks the prospect of more good years ahead is enough to entice farmers back into the market. “They’re actually very optimistic. They do put seed in the ground every year and you’d better be optimistic if you’re doing that,” says Kwochka.
“They’re probably the most hopeful people out there.”