by MATT MCINTOSH
Corn prices might be substantially lower than they were a year ago, but the cost of field rental and land acquisition remains high in some of Ontario’s prime growing areas like Chatham-Kent and Essex.
Dave Armstrong, a cash crop and livestock farmer near Wheatley in Essex County, says stiff competition from larger operations is making both renting and buying land very difficult.
“My rent is going to drop with the price of grain, but it’s hard to pick up land when you’re running a smaller business,” he says. “Renting isn’t too sustainable, so you have to buy land, but that can be hard because the price of ground is so high right now.”
“The big guys are the ones who can afford it, and they keep growing,” he says.
Armstrong is caught in a crunch that many other farmers in Ontario can expect to face over the next while as land rental rates remain high even as the value of the commodity crops grown on them falls.
Fluctuating commodity prices will have an effect but it can take a while, explains Alfons Weersink a professor in the University of Guelph’s department of Food, Agriculture, and Resource Economics, in a recent interview. “This year, when prices have dropped, rent prices are still set to increase a bit; rental rates tend to lag behind commodities.”
In a February 2013 report, Weersink and Brady Deaton, another professor in the same department at the university, identified demand as a key factor in driving how much farmers pay to rent farm property.
This is because rental rates are partially determined by what farmers and owners think the return on their crops will be in the following year, Weersink says in a recent interview, and in recent years, higher commodity prices have made Ontario’s farm rental market more competitive.
But there are other factors at play too.
“Soil quality is an important one, but land availability is one of the most significant,” says Weersink. “While lower commodity prices will likely lead to a drop in rental prices, high demand means some land will still go for top-dollar.”
He also says that an increasing percentage of Ontario’s farmland, about 35 to 40 per cent, is owned by non-farmers. Some, he says, is owned by large foreign investors.
Weersink outlines the extent to which demand can affect rent using the example of Kent County and the Chatham area, which has rental prices that surpass those seen in the highly competitive land markets in the regions surrounding Toronto.
“You wouldn’t expect it to be the case, but some markets are just that competitive.”
Despite competition in the land market, Deaton says in a recent interview that renting has been more profitable than purchasing in recent years, thanks to a steeper increase in the price of land per acre.
According to Deaton, a saving grace for some farmers can be relationship building. He says the average rental agreement in Ontario is for a 10 to 12 year period, and the majority of rental contracts are actually oral contracts.
“Building and maintaining a positive relationship with the landowner helps producers weather outside competition,” he says. BF
Comments
I don't understand why foreign investors want to invest in agriculture when there are other places that offer better returns. For example, an S&P 500 index fund non-hedged is up over 38% YOY. Also, I am not sure I agree that the big guys can afford it. Remember the huge Michigan cahcrop farmer that went broke in the spring? Yesterday the US fed announced it is starting to reduce its bond buying program, so that means a rise in interest rates is getting closer. When the tide goes out we will see who has been swimming naked. Raube Beuerman
Because, like anyone will tell you, when the economy crashes the government can take everything away from you, food, money, gold, except they cant take the land.
If USD becomes worthless, land investment in America is the best investment.
Hello the government can take your land from you any time they need it or want it PERIOD. The government can take everything you have even your life is theirs , never read about the people out there in different countries where they are forced into slave labour or thrown into prison or execute you for not doing what the government wants you to do.
And you farm why ?
So you can swim naked with your hogs ?
Next time I hear a hog farmer cry hard times , I will tell them to swim naked
Reminds me of stocker prices eh! The big get bigger again.
Was saying for some time about China buying land and all I heard was no way. Why wouldn,t they buy in different countries if they have a problem in one they have lots of other places to fall back on. China is supplying the world with mostly all the end products so why not invest in land in the other countries to feed and get the raw materials they need for their country. Unlimited supply of money.
The land costs will always lag behind return on investment .We farmers are slow to react,we are always a year behind.All of our overhead costs have risen seed,machinery land .We are our own worst enemy when time are good we spend like drunken sailors when times are bad we cry.What interests me is what are the new costs of production for some guys with all the new purchases and if interest costs rise will it put them under the gun
AND THEN THERE IS SUPPLY MANAGEMENT lots of money there they can afford the land they want to get bigger then there neighbour don't know how good they have it
Many grains farmers get grumpy having to compete with chicken farmers whose chickens pay for their combines, and, because of chicken manure, get free fertilizer as well.
It's tough to be "all in it together" with somebody whose cost of production includes free fertilizer.
Stephen Thompson, Clinton ON
So, are you suggesting pork, beef, sheep, goat, and non supply managed chicken manure isn't free fertilizer?
The feed on chicken farms is paid by a cost of production formula - therefore, the manure is "free" in a way it simply can never be on farms which don't enjoy a cost-of-production pricing formula for the feed they buy.
I guess you'd have to be in a situation where you're buying fertilizer, and your neighbor doesn't, to understand the inequality of it all.
Stephen Thompson, Clinton ON
You seem to be contradicting yourself. In previous opinion comments, you always claim that Cost of Production is meaningless.
Cost of production is meaningless in the overall sense because the market doesn't care about it.
However, production costs which vary from farm to farm because of 200% tariff barriers, like the fertilizer bills on poultry farms when compared to grains farms, do matter a lot.
Stephen Thompson, Clinton ON
Both SM and RMP for non SM allow both fertilizer and application costs to be factored into COP, therefore even though SM has very little in actual commercial fertilizer costs, they are allowed a substantial allowance for manure fertilizer application including machinery, fuel and substantial labour. The key for RMP is for farmers to be enrolled plus not being capped out. Unfortunately, because of short-sightedness due to those who organized OASC, cap is starting to become a major issue which could effectively neuter RMP.
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