Saskatchewan Farmland is cheap

i think Sprott Resource (SCP) has found a way around the restrictions by making land deals with the natives for farming ...


I haven’t yet talked about what I think is the single best land idea I’ve encountered so far - Canadian farming land, out in the Western states. Now there’s a damn good reason for that silence on my part – you can’t buy any of this ultra-cheap farm land because only local residents can buy the stuff. Still if you can find a way around these regulations then I suggest you read on.

I’ve been talking on email to the boss (Stephen Johnston) of the premier Canadian investment company that runs funds in this area – AgCapita. According to Stephen : “Agcapita is one of the only investment vehicles on the market - our current retail fund was only open to Canadian citizens/residents and raised almost $20 million of investable capital. We launched in late 2007. The farmland investment market in Canada is still embryonic and Agcapita is the market leader – both in size and expertise.”

The central investment concept is that farm land in states like Saskatchewan is dirt cheap – although prices in the other two prairie provinces of Alberta and Manitoba are also low.

Here’s Stephen on the potential….

“The wheat/canola yields across Saskatchewan, Alberta and Manitoba are basically the same and of course the infrastructure and political risk are the same. However, Saskatchewan has an average price of $400/acre, Alberta $1,100/acre and Manitoba $660/acre. It is worth noting that the large price difference between the three provinces did not exist up until 1988 – they traded in lockstep for almost 100 years. The disparity is primarily the result of Saskatchewan land ownership legislation passed in 1988 prohibiting all non-Saskatchewan residents (including Canadians in other provinces) from investing in the farmland in the province. On top of the regulatory barrier we had low commodity prices and immigration out of rural communities in western Canada. We would argue that all three of these factors are now in our favour. The ownership rules have been liberalized, commodity prices are stronger and people are moving back to Saskatchewan for the first time in 25 years. Our investment premise therefore has three drivers – 1) inflation, 2) the global agriculture commodity bull market and 3) that the artificial price disparity between the Prairie Provinces disappears bringing Saskatchewan up to the same average price as Alberta.”

Now Stephen is of course something of an agriculture bull, as you’d expect – “ we believe the world is still in the early stages of the current commodity bull market. When agriculture commodities prices are compared against their previous inflation adjusted highs they are significantly discounted implying scope for further price increases…During the last commodity bull market & high inflation period in the 1970’s, equities materially underperformed farmland. Western Canadian farmland went from around $100/acre to $550/acre (550% total return and 176% in inflation adjusted terms), cash held in a money market account barely kept ahead of inflation (6% inflation adjusted return) and the S&P 500 index returned less than 2% per year (a loss of almost 50% in inflation in adjusted terms)”.

I’m very agnostic on this super cycle stuff but the core of Stephen’s argument I think stands – that this prairie land is dirt cheap. According to a research paper from last year, AgCapita reckons that the average cost per acre of Saskatchewan land is $390 compared to $660 for Manitoba and $1000 for Alberta. In Brazil the equivalent is around $1000, in the US its $2,700 and in the UK it was $10,000. Now those huge differentials are OK if the farm land was dreadfully unproductive or the infrastructure was terrible – but neither is true. The land is largely cheap because there’s a lot of sellers and there aren’t enough buyers in part because of the land ownership rules. Pity we can’t invest in the stuff !

FT.com / Personal Finance - David Stevenson: Land is cheap