Thursday, March 12, 2015

Canadian Farms: LandPrice, Debt, SM, & Speculators

Canadian farmland is near an all-time maximum price in $ per acre, well beyond what any farming use or crop can support on a cash flow basis.  Why and how has this occurred, and what should be done about it?

Supply Management farmers that have quota for eggs and/or poultry (chicken & turkey) are the best paid farmers in Canada (see Blog posting Tail Wagging the Dog).  Some believe that those SM farmers use their robber baron profits to bid up the price of existing farms and farm land, hoping to expand their kingdom further as they receive additional free quota, or lease quota, or if all else fails, buy additional quota.

Some feel it is Nutrient Management land needed by CAFO (Concentrated Animal Feeding Operations) such as factories raising dairy, beef, chicken, and pork. The additional acreage is needed to spread their tonnes of manure, as mandated under environmental regulations for their CAFO factories.

Others feel the rising farm prices are due to HAM (Hot Asian Money).  There are alleged to be many corrupt or shady entrepreneurs in S.E. Asia who need to get their money out and invest it in a safe, friendly, stable democracy so that they don't lose their profits or can hide their ill got gains.  Canadian farms or condos in Toronto or Vancouver are some of the best, as all of these are exempt from money laundering check and regulations under FINTRAC.  I suggest it isn't just HAM, it's also soul-less, selfish money from Bay Street, Wall Street, Fleet Street, and many more.

Similar to HAM (see above), some feel it is land speculators who are buying up "low cost" farmland, renting it back to farmers so that the speculator enjoys the low property taxes for farmland while he land banks the acreage and awaits for the right time to mutate the farm into subdivisions and condos.  Every year,, the speculator pays some mercenary real estate agent or evaluator to get a letter as to the estimated "best use, highest use", then uses that letter to report to the speculator's investors as to the paper-based capital gains they have achieved.  What actually happens in the end is highly speculative, and not a sure thing, so the speculator is often not a good landlord for the farmer.  See below for further discussion on this explanation.

I have previously posted about the huge debt that Canadian farmers are carrying (see FCC: The Farm Debt Trafficker, or FCC: A Plot to Kill Supply Management, or Frightening Farm Finances).  The last time farmers tried doing highly leveraged finances to operate their farms was in the 1980's.  Many of those farmers went bankrupt and also took down FCC's predecessor with them, forcing the Federal Governments banks for farmers into receivership at great expense to Canadian taxpayers.

Now, the National Farmers Union has come out with another report on farmland prices Losing Our Grip-2015 Edition (full report here).  This 2015 edition is a followup from the 2010 report Losing Our Grip How a Corporate Farmland Buy-up, Rising Farm Debt, and Agribusiness Financing of Inputs Threaten Family Farms and Food Sovereignty (Serfdom 2.0)

NFU believes Canada needs additional protections for its farmland from both foreign and domestic enemies..  Better Farming has done an interesting summary, especially their interview with Mr. Tom Eisenhaur, President of Bonnefield Financial Inc., a Toronto hedge fund that has invested more than $300 million in buying Canadian farms, then leasing the land back to farmers.

Note a farmer's comments (Rob Beuerman) on Bonnefield's assertion that "By definition, we could never buy a piece of land for an uneconomic price":
"I know of no piece of farmland within 100 miles of where I live that is economical.  One hundred acres recently sold south of me a few miles for $18000/acre.  Even on land that is debt free, a farmer these days is doing well to net profit $250 [per] acre at todays prices. That puts that farm well over 50 times earnings.  These so-called investors will be looking for a return on their money.  Where will it come from?"
Local to me, Blue Goose, backed by FCC and Dundee Corporation (see pg 74) tried doing similar REIT-type agricultural speculations and lost their shirt, or are trying to slowly extract themselves from a wonderful paper profit that has been a disaster down at the farm, both financially as well as agriculturally.  Apparently Blue Goose's lessons cannot be vicariously learned by the other speculators who are following in their footstep, or on a similar parallel path.

Oh, when will they learn!

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