by DAVE PINK
A Statistics Canada report released this week confirms the overall health of the agricultural industry across Canada.
The balance sheet of the Canadian agricultural sector, up to Dec. 31, “was no surprise,” said Mark Wales, president of the Ontario Federation of Agriculture. “It’s really a reflection of farmland values, and in Ontario those prices have shown their largest increase in years. That has renewed optimism.”
And if there’s any downside to the higher prices for grain that are being paid to farmers across the country it is in the livestock sector, where feed is now more costly, said Wales. “If anything, I’d like to see more balance in the industry,” he added.
But, he said the economic growth in both China and India should result in a continuing high demand for Canadian-produced protein, and a reason for long-term buoyancy in Canadian agriculture.
In all, equity in Canada’s farm sector totalled $341.4 billion at the end of the year, up 7.7 per cent from the previous year. Strong gains in the value of assets outpaced a rise in liabilities. In Ontario, there was a net gain in equity of 10.3 per cent, to $93 billion.
The report also pointed out that the total value of farm assets rose nationally by 7.5 per cent of $408.1 billion in 2012, while total liabilities rose 6.4 per cent to $66.7 billion. The largest increase among asset categories came in the value of farm real estate, up 9.7 per cent to $32.9 billion. That is the largest annual percentage increase since Statistics Canada began tracking farmland prices in 1981.
The debt-to-asset ratio, which measures the dependence of farm business on debt, was 16.3 per cent in 2012, down slightly from the previous year, and the lowest since 1999. BF
Comments
Just like Canadian housing is waaaay overvalued, so is Canadian farmland. A few things to keep in mind. 1. When looking at the debt to asset ratio, we must keep in mind that we have inflated real estate values based upon artificially low interest rates thanks to the central banks printing money fiasco. In other words, if the central banks were not pulling money out of thin air in an attempt to keep the economy from collapsing interest would have gone up a while back. The last 2 days the markets have tumbled since Bernanke announced he may scale back. If this plays out expect interest to rise. Canada has been using QE also. 2. While the story above paints a rosy picture of agriculture for the most part, lets not forget that virtually every sector in agriculture is government supported by mandates, subsidies and SM. 3. Economic growth in China has slowed. Many thought that China would become the next economic superpower of the world within 10 years, but that is questionable now. They have a nasty credit bubble. There were at least 3 stories on the FP regarding China this week. If the same type of crisis happens to China as what happened to the US during the Dot.com or housing bubble the trickle down impacts to the economy could be devestating. Fasten your seatbelt ladies and gents, the next year or 2 may be a wild ride. Raube Beuerman, Dublin, ON
I own a bit of farmland, your commentary above is right on and excellent. I'll add that I dont think Bernake will stop his trillion dollars a year of bond purchases will stop any time soon. When and if the stock market collapses or China callapses the counterfeiting will accually increase.
The central banks(created by government) of the world have caused financial ruin for savers. Its a terrible thing when real inflation is higher than what you can get on money in the bank. As far as this bond buying scheme, let me see if I have this right. The central banks are buying government bonds and few others are in the market. So the question is, when it stops will anyone else be interested at that rate. Doubtful- and rates are rising. Raube Beuerman
In the Wall Street Journal earlier this week, the reasons cited for the decline in the Canadian dollar were our overly-high housing market, and our over-dependence on the exporting of oil in an age when the US, thanks to declining demand, and shale gas supplies, was needing less. In addition, the "conventional wisdom" prior to mid-2008, was that the US housing market was as rosy as all could be - it would have been if people had completely ignored sound investment principles. We completely deserve to see every over-levered dairy and poultry farmer go broke - it would be the absolutely best thing we could ever do for the next generation of farmers, and it can't happen soon enough.
Stephen Thompson, Clinton ON
We live in an age of pure speculation. People figure if they invest a dollar today it'll be worth $30 in month! We can't accept slower long term growth. And god forbid deflation. I know farming and have been around it all my life and never thought it could inflate this much this fast. Land is in super consolidation mode and "when" and I mean when it starts to slide off of this peak. Who is gonna pay for these billions and billions of dollars of lost investment? I'm pretty sure FCC hold a big percentage of it! And to anyone who has agricultural land that warm feeling you have inside of you cause you think you're worth millions. Enjoy that false sense and don't cry to much when values start to tumble. This all just shows how greedy people can really be.
The fog will dissipate and reality will set in . You can bet your behind that every one who pays taxes will be footing the bill . Farm groups and reps will be storming Ottawa and Queens Park crying the blues for bailouts for their members who cut things too thin when they should have been sitting tight . I don't care if it is hogs , beef , SM , cash croppers or what ever else . You did it unto yourself then live with it . We can't keep going to the gov trough for money all the time when we make bad business decisions . No other business gets to in town ! It will be interesting to see if a farm group tells their members to suck it up .
I can see it now . Persons who went through farm debt review before and some more than once will be leading the charge for help but not for any one but themselves ! Gh5!
The Gloom and Doomers will always have their negative agenda.The fact is we will have 3 Billion more people on Earth in 50 years than we do now! That alone should spell prosperity for farmers around the world not just Canada.Our land base for Agriculture is shrinking due in part to cities and towns expanding.l don't think there is any question land prices will remain high.The Government has already cut back on some Ethanol subsidies and l expect the US will do the same,hence some relief for the livestock industry.The GMO opponents will some day figure it out that conventional and organic just can't feed the world.
One thing you didn't mention-the world is broke. Look at the Europe and its neighbouring countries. Are we headed down the same path? Canada has the highest personal debt of all the G7 countries. Governments and central banks worldwide are proving they can't get a handle on the economy. Now they have used up every weapon at their disposal. When interest couldn't go any lower they engaged in QE to keep rates artificially low to help keep the economy chugging along, except, tada.... it created another problem of private and public debt soaring. Without interest rates rising, as they normally would have without QE, inflation is running higher than it should be. If QE does not soon stop it will create a bigger problem in the long run, if it has not already. Its not that I want to put a negative spin on this, I do enjoy farming. I am just more realistic than you. Raube Beuerman, Dublin, ON
There is not a developed country in the world that hasn't gone through a boom-bust cycle in their history..several times.You mention Europe but l see Germany as doing very well.The USA,Japan,Canada and the likes of Great Britian are all vunerable to the debt crisis but they are far from broke! There are lights at the end of the tunnel. The finances of many East Asian and emerging market countries are actually in far better shape than those of most “advanced” countries, they might carry us through this..There are certain Agricultural "journalists" in this country that have a problem with the likes of China investing in our Agr-markets...why? Their money is just as good as the US of A's..maybe even better right now!
Boom bust cycles have been a part of history BUT QE has not and that is the key difference. A normal boom-bust cycle is dependant upon allowing interest rates to work without monetary policy interfering. The fed thinks it is controlling bond rates, but it now looks like the bonds are controlling the fed. As soon as they take away QE the market will expect rates to rise because it is signalling that the recession is over and the economy can stand on its own. So if the market expects rates to rise they sell bonds. But...there will be more sellers than buyers. They have trapped themselves. As far as other countries, yes Germany is better than many, they have alot of business with automakers and such, but the British economy and Greece are dead in the water. That "journalist" you mention has also noted that over 85% of farm loans are floating. If that is true, when this QE scam comes to an end, rates will rise quickly and there will be tears. Raube Beuerman, Dublin, ON
You really think you're gonna make more money if we have 3 billion more people on this earth? The fact is that of those 3 billion 99% or more will be poor! Look at the amount of people today that are malnourished and can barely afford to eat. That's all propaganda. If you look over the past few years since gmo was introduced how far we've come in production compared to the increase in costs I'd say that we're are just inching forward. There is only so much that you can get out of the ground without severely causing damage to the soil. With the GMO crops I don't see any decrease in my weeds, I'm just seeing more and more diseases showing up. This has been proven in the 70s what can happen. The only difference is you don't need interest to hit 15-20%, all it needs to do is jump 4% and we will be swimming in red ink!
I think 2.5% would sink 25-35% of farmers/homeowners
Maybe it would but exactly when is that 2.5 going to hit? We here in Canada take our cue from the US and with the Americans just trying to come out of a recession, there is no way they are even thinking of damping consumer confidence with higher interest rates.
Well the U.S. likely shouldn't raise rates or the economy will suffer, but that would require the people in charge to actually think, and I am not sure that will happen. When they decide to raise rates they will and trump out a bunch of numbers to say why they should, even if the numbers make no sense or are changed later, they will charge ahead, and likely cash in on investments made to capitalize on the rising interest rates too.
John Gillespie
Ripley
We heard the same "it's going to be great forever" and "feed the world" nonsense in the late seventies, when people were claiming - "buy land, they're not making it anymore", resulting in an inflationary price spiral for land. And while not generating the same stratospheric price/earnings multiples as now, the price earnings multiples for land at that time were also unsustainable. The inevitable result was that land values declined by 50%, back to a reasonable price/earnings multiple, by the mid-80s. One absolute rule in any investment climate, but particularly in agriculture, is that when the so-called "man on the street" starts to claim things like there is "no question" that the price of this, that, or whatever, will remain high, it won't.
Stephen Thompson, Clinton ON
Half a dozen years ago, "everybody" knew the US was going to run out of pretroleum, and, therefore, the supply of, and security of, petroleum, was reason enough to mandate the use of ethanol, to the immense glee of grain farmers, and to the equally-immense horror of livestock farmers. However, since 2008, the introduction of hydraulic fracturing, and more fuel-efficient vehicles, has put the US well on its way to energy independence, and, as well, has lowered the price of natural gas by some 70%, thereby knocking the stuffings out of all forms of over-priced green energy, as well as knocking the stuffings out of the propane business. Some sort of similar macro-economic change will knock the price/earnings multiples of farmland into reality - it always does, and it always takes the people with the rosy (and equally-unrealistic) outlooks, completely by surprise.
Stephen Thompson, Clinton ON
you have forgotten to mention interest rates being the main culprit in the farm crisis of the early 80's and the decline of land values.So unless you can look into your crystal ball and see a return to double-digit interest rates in the near future l suggest we keep riding the wave.
The farm crisis of the early 80s was caused, almost entirely, by our own stupidity and our "buy land, they're not making it anymore" investment mentality of the late 70s - If we hadn't so-stupidly over-borrowed and driven the price/earnings multiples of land to such extreme levels, 20+% interest rates would have produced a relatively-minor problem, not a crisis. I've pointed out before that the signs were all there at the time, including a cover story in Fortune magazine in 1979 which read - "Investors in farmland on dangerous ground". Therefore, it is unfair to blame interest rates for returning price earnings multiples of land to more sustainable rates by the mid 80s, because interest rates were simply doing the job they were meant to do, and that was to rid society and our economy of the inflationary expectations we had deluded ourselves into believing. The same thing will happen to land values now - there will be some sort of outside catalyst which will be blamed, because we'll never blame our own greed and stupidity. In addition, the signs of a reversal are as plain to see now, as it was for Fortune readers to see in 1979 - we have a denial of, and blockage of, marketplace reality in dairy, poultry, and grains, and this has produced dot.com level price/earnings multiples for farmland, yet farmers, and especially farm organizations, are saying "Problem, what problem?"
Stephen Thompson, Clinton ON
QE (money printing) is a new idea/experiment from the central banks of the world including Canada and is the only reason why interest has not normalized. They can be thanked for not keeping inflation in check and leaving no place for savers to put money with a decent return. The central banks need to get the f*** out of the way and let the market work. Raube Beuerman, Dublin, ON
Editors deleted unsigned personal attack
Increasingly-strong farmland values mean nothing if they are caused by sky-rocketing price/earnings multiples - therefore, when OFA President, Mark Wales, points to increased farmland values as a sign of prosperity in the farm community, he'd be right if farmland was worth somewhere between 12 - 15 times earnings, not up to fifty times earnings, the way it is at present. Wales is dead-outright wrong because today's increased farmland values are only an illusion of prosperity. The reality of farmland valued at up to 50 times earnings, is a bubble waiting to/begging to burst, and it will - things aways look the rosiest just before the bubble bursts because people are looking at the wrong things like asset values, when they should, instead, be looking at the ratio of asset values to income.
Stephen Thompson, Clinton ON
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