Next Event:
82594
DD
days
:
HH
hours
:
MM
min
:
SS
sec

Hooray!

PROCHAIN ÉVÉNEMENT
82594
DD
days
:
HH
hours
:
MM
min
:
SS
sec

Hooray!

Farmland values have rocketed in the last few years, and now that grain and oilseed prices are falling, there will likely be more than a few cases of buyers’ remorse.

But Ontario farmer Dwight Foster won’t be one of them.

In addition to cash cropping and raising cattle, Foster is also an elevator operator and knows there’s a tendency in agriculture to believe the good times won’t end anytime soon.

“That’s obviously part of what keeps farmers going – that belief that next year will always be better,” says the 47-year-old owner of North Gower Grains (northgowergrains.com), a short drive south of Ottawa.

“We’ve had three or four excellent, excellent years with crop prices, and farmers quickly forget the poor years. But reality has struck again this year – the price of corn today at our country elevator is exactly half of what it was last year.”

That optimism fuelled a land boom in his part of Ontario. Good land in his area has been going for $15,000 an acre, says Foster. That’s a ten-fold increase in little more than a decade, with most of it coming in the last five years. During that time, Foster has been actively buying land, increasing his holdings to 2,300 acres (along with 4,000 recent acres), even though he knew the up-and-down price cycle for grains and oilseeds would inevitably re-assert itself and take the wind out of the farmland bidding frenzy. So why not wait?

“The first key is, ‘Can you service the debt?’” he says. “It all boils down to the economics.”

Low interest rates were a key factor and so was the fact that he has built enough equity over the years that his balance sheet can handle the debt, even in lean times.

“I started with 100 acres in 1989,” he deadpans. “One day, I’m going to write a country song about that – a hundred acres and a hundred-horsepower tractor.”

The second reason is that he believes the trend is still running towards bigger farms in commodity grain production, and that he’ll have to get bigger yet.

“The reality is land is the quota for a cash-crop farmer. Quota is the ticket a dairy farmer needs to produce milk, and land is the ticket for a cash-crop farmer to produce grain. Whether it is quota or land, you can ask: Are you ever going to pay that off? Well, at $15,000 an acre, it’s not going to be easy. But while the increase in prices may slow down, I don’t believe land values are going to go the other way, so that’s why we continue to buy land.”

Equally important is what’s missing in that explanation: Foster is not buying land for investment purposes.

“Yes, the equity in the operation has increased, but equity has never paid a bill,” he says. “So when you buy land, you have to understand that you need the cash flow in place to pay the debt down. Unless you want to start selling property – but that defeats the purpose.”

The old stock market adage – buy low and sell high – simply wasn’t in his thinking.

“I’m not in the business of buying and selling farmland, and I’m not a farmer who is going to be retiring in five years’ time,” he says.

“I knew when I was eight years old that I was going to be a farmer. My wife and I talk about retirement, but what’s that going to be? We may slow down and someone else may take the reins, but we’ll still be on the back of the horse.”

Nor are they buying land with the expectation that one or more of their five teenaged children will farm. They want their kids to get an education and try something else before making any decision on whether to take up the family business.

“The greatest requirement for being a farmer is to have a passion for farming – it covers up a lot of mistakes,” he says. “You don’t farm because it’s the best financial decision you could make. You farm because you love to farm.”

– 30 –