For better or worse, agricultural land is increasingly being rented

By Mike Renzella

The Haldimand Press

HALDIMAND—As residential lands hit all-time highs with strong demand and limited supply, agricultural land values are seeing their own impacts as well.

Jack Huitema, Broker of Record at Coldwell Banker, K. Miller Realty, said of the agricultural real estate market, “Values are not rising as fast, except when you have city influences and location.”

This means that rural areas in closer proximity to transportation networks or community hubs in the county would generally have a higher value than lands or properties in the more remote parts of Haldimand.

He added, “People buying in the countryside with good highway access will pay a premium to have the luxury of country living.”

Huitema noted that there are generally less buyers for larger parcels of land as the average consumer isn’t seeking those sizes, however, “when a farm becomes available there are a number of large farms in the area that will try to out-bid each other to get it. You only get to buy your neighbour once in a lifetime.”

Like other areas of real estate right now, he described Haldimand’s agricultural scene as a seller’s market. Higher levels of interested buyers are bidding over fewer available properties. He pointed toward the amount of farmland being rented as a sign of where the future of agricultural real estate may be heading.

“In certain areas land is being purchased by investment firms as part of their portfolio of investments and being rented back to the farmer. We just had a property owner from British Columbia sell land in Ontario to a farmer from Saskatchewan. In Ontario, he has already purchased over 1,200 acres,” explained Huitema. “I think about 30 to 40% of land is rented to farmers from rural farmland owners; this will increase over time.”

A 2020 study conducted by the Ontario College of Agriculture (OCA) and released this month confirms that approximately 40% of farmland in Ontario is rented.

Huitema called the option to rent land a “good option for someone starting out if they can get a long-term commitment from the landowner.”

He declined to comment on whether he views this growth in the rental market as a good or bad sign for the future of the agricultural landscape of Haldimand County, offering the following prediction: “Values will continue to increase as the city moves closer and, if commodity prices stay strong, there will be demand for it from existing farmers.”

According to a 2020 survey by the Ontario College of Agriculture, Haldimand County’s median cash to rent farmland is $100/tillable acre with a $9,000 median price to buy a tillable acre, making the rent/price ratio 1.1%.

Henk Lise, President of the Haldimand Federation of Agriculture (HFA), believes the negatives outweigh the positives for the increase in rented land.

“One farmer wanted to sell everything as a big chunk. Basically, what happened is, he sold it and then rented it back. He’s still farming but he’s got no overhead, no assets, and he’s retired…. Your overhead is lower per year; you don’t have a mortgage payment,” explained Lise on the potential benefits of the current rental market. “If you’re looking to sell, there’s an advantage to it.”

However, Lise continued, “Some disadvantages would be that you’re not building an asset and at any time you could lose the land. Somebody else could come in. There’s probably more disadvantages than advantages.”

The Ontario Federation of Agriculture warns that rental agreements can have a negative impact on farming activities depending on the conditions imposed by the landlord. The OCA study additionally shows that land ownership and rental are not mutually exclusive, and instead the more farmland an operator owns the more land they are likely to rent, lease, crop share, or custom farm in.

Lise noted that whether it’s an investor or a big farm coming in to buy up land when it becomes available, it’s all just an asset that will grow over time.

“The problem is they don’t make more dirt,” he said. “The people with the money to invest are investing in it. At least most of them are renting it back and not leaving it barren.”

Lise says the demand for land has always been an issue, describing it like any other business practice. Whether farmers want the square footage, the store frontage, or the shelf space at the retail store, they’ll have to pay for it.

“As soon as there’s wind of somebody selling a farm, the buyers all move in. Part of the problem is nobody puts up a For Sale sign anymore. You see the Sold sign, not the For Sale sign,” Lise said. “If you’re looking to go over asking price then you list it…. For example, if you had a 100-acre piece, the real estate guys would call and I could probably have it sold today by five o’clock.”

The OCA survey listed Haldimand County farmland at $100 per tillable acre to rent and $9,000 to buy that same amount of land. Both numbers are lower than the average cost of land for the other areas surveyed, with counties such as Huron listed at $300 to rent and $16,000 to buy the same amount of land.

“With higher land price comes higher yield,” explained Lise on the difference. “Haldimand’s got some really rough land, and it’s got some good land. It’s very variable. If you go to Embro, east of London, that land is going for $30,000 but they’re probably getting double the yield. On corn they’re pushing $300,000 a year consistently. We might get lucky.”

He continued, “You’re spending $800 a year to plant a corn crop and getting a 300-bushel yield versus spending $800 a year to plant a corn crop that gives you a 185-bushel yield. That 115 bushels is pure profit, which drives land price up in those areas.”

As for young people trying to make their way in farming today, Lise believes it’s these numbers that will make it difficult to break into the industry.

“Back when I started farming, I could have bought a Tim Hortons franchise for $400,000; they’re worth quite a bit more now. That’s the problem with getting into farming,” explained Lise. “The margins aren’t that huge. I would say to a young guy, ‘Are you sure that’s something you want to do?’ And if it is, hopefully they’ve built relationships with other farmers that are looking to retire, and they can slowly take over what the person rented or owned.”

Would he recommend starting out in Haldimand County? Yes, but with caution: “It could be an advantage for somebody looking to get their foot in the door, because of the lower operations cost, but your returns are going to be lower too.”

Those wishing to view a summary of the OCA survey can do so at the Ontario Federation of Agriculture website at ofa.on.ca.

 

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