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Farm Land Values: Alberta's Changing Crops

28 May 2013

Constantly shifting farmland prices have seen Alberta land values increase by 2.9 times, whereas Saskatchewan has only seen marginal increases. Generally the appeal of farmland as an investment and a future reserve has increased demand.

Part of the driver of having beef cattle or raising crops is the financial return from investment, write analysts at Alberta Beef.

During the past five years returns on cow calf or feedlot investments have been struggling. The past couple of years cow calf returns are starting to come into the black, but feedlots still tend to show returns in the red. This is tending to take some land out of forages for cattle and being put into crops such as canola. During the past two years the cash returns from this have been excellent.

Also, as the value of crops increase and take land out of forage, cost to maintain cow calf operations tends to compete for pasture and forage because of the decreasing land base for it. The other driver related to this is the value of land. Crop and pasture land have value, but the increase in it has some merit to be focusing on one venture or the next. Cash crops put money in the bank and pay the bills while increasing land values work as a future reserve and investment.

Comparison of Farm Land Prices

Average Land Value Index in Alberta and Saskatchewan from 1980 to 2012

The past 20 years land prices have been increasing in value. During this period average farm land values in Alberta increased by 2.9 times and those in Saskatchewan did not double. Compared with having an average financial investment in the stock market, a similar amount would have increased by 14 times.

S&P 500 Index "1980"

S&P 500 Index for Investment Funds from 1980 to 2012

The two might not be comparable because land can be financed by a mortgage as a farm input and is used to derive some farm income from it. Also, farm land can be sold without a capital gains tax, but it does show the limiting financial return during this period.

Some changes have occurred with this during the past 12 years and land value increases have had some momentum. During this period average land values in Alberta have more than doubled and those in Saskatchewan went up by 74 per cent. S&P 500 values for financial investment did not, on average, increase during this period. In this case farm land would have been a better overall investment compared with the financial vehicle.

Comparison of Farm Land Prices

Average Land Values in Alberta and Saskatchewan from 2000 to 2011

This is also driving the price of crop land up. Farmers are wanting to purchase or lease land for cash crops with a double incentive. As a result, the price of forage land increases beyond its crop or livestock return, pulling it into a crop input for future investment value.

S&P 500 Index "2000"

S&P 500 Index for Investment Funds from 2000 to 2012

May 2013

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