Tightening returns in the grain sector are having an impact on the market for farmland.
Kevin Hursh of SaskAgToday.com talked with Tim Hammond and Bobby Montreuil of Hammond Realty.
Tim Hammond says he’s seeing price divergence between good quality cropland versus poorer land.
It can be attributed to tighter margins, people being more selective, and risk profile, Hammond said.
"Good land tends to be in a little bit better rainfall area. There's less risk. The revenue on that land is more reliable, whereas average land, it's a little more sensitive, right? And if we don't get the rains, it can impact margins and revenue pretty quickly and I think that's being reflected in the price right now." he said.
In addition to working for Hammond Realty, Bobby Montreuil also farms in West Central Saskatchewan. He sees first hand the impact of declining returns on land purchase decisions.
"The West Central area where we farm, we had record yields this year, and just when I sat down with my accountant before Christmas to go through the year, when the numbers shook out with higher input prices and slacking commodity prices, it was just an okay year. It wasn't phenomenal, so I think that's part of the reason we're kind of just finally levelling out." Montreuil said.
"Specifically to us, we are analyzing risk, I think, similar to what we're seeing at Hammond Realty with our buyer clients. We're in a bit of a holding pattern when it comes to expanding. We're trying to hedge our risk as best we can, whether it be pre-buy some inputs in fuel, really analyzing our insurance, or maybe capitalize on some forward selling, Act of God clauses, that sort of thing — anything to minimize risk is kind of the name of the game for us."
Hammond says he's seeing more instances where farms are looking to sell land to an investor and then lease it back, something he hasn't noticed since the early 2000's.
"Probably since about January, we noticed a real uptake in that," he said, "They're looking for micro ways to adjust, and I think it's healthy, but I think it does reflect the risk that's in the industry right now."
Hammond said while it's a way to clear up some debt without losing the land base, the risk is not being able to find an investor and end up losing the land and a revenue stream.
Hammond and Montreuil will be featured on a podcast by Growing the Future Productions next Tuesday morning, hosted by Dan Aberhart.
You can find the interview with Hammond and Montreuil on the SaskAgToday.com YouTube Channel.
(with files from Kevin Hursh)
