The price of gold has increased 30 per cent so far this year, but farmland has traditionally proven the best investment over the long term because of a steady income stream
Robert Arnason Western Producer Western ProducerAugust 17, 2020
Imagine it’s the year 2000 and there are two investors, with $1 million each.
One investor buys $1 million worth of gold and the other purchases $1 million worth of Saskatchewan farmland.
By 2020, who is better off?
The simple answer is gold.
In 2000, gold was valued at US$272 per ounce. On August 4, gold hit US$2,000 an ounce for the first time in history. Ignoring inflation, gold is now 7.35 times more valuable than it was in 2000.
Using the Farm Credit Canada (FCC) historic farmland values report, published in 2018, the average increase in Saskatchewan land values from 2000 to 2018 was about 8.5 percent. Over a 20-year period, the initial investment of $1 million would be worth $5.1 million at the beginning of 2020.
So, the land is 5.1 times more valuable than it was in 2000.
Gold seems like a better investment, but farmland has one huge advantage — an income stream.
The owner can lease the land and earn rent. Depending on the acres and the rent, it could have generated $40,000 to $75,000 in annual income for the landowner over the last two decades.
“When you compare gold to farmland… farmland traditionally has proven to be a better investment,” said Robert Andjelic, owner of Andjelic Land, a Regina company that owns about 210,000 acres of farmland in Saskatchewan. The land is spread across 85 municipalities, but a large chunk is in the eastern half of the province, stretching from Yorkton to Regina and down to the United States border.
In the first seven months of 2020, global investors have poured trillions of dollars into gold. It has gained more than 30 percent in value, as money managers look for assets that are stable and safe in the year of COVID-19.
“The root cause [behind the gold rally] is uncertainty,” George Cheveley, a fund manager at Ninety One, told the Financial Times. “It’s uncertainty about whether the world plunges into recession next year or recovers, spurred on stimulus money.”
It’s very unlikely that Canadian farmland would jump 30 percent in just over half a year, but the benefit of agricultural land is its value won’t fall off a cliff.
In the FCC historic farmland values report, which looks at 1985-2018, there was only one year with a double-digit decrease. In 1987, farmland values in Canada sank by 10.2 percent.
From 1993 to 2018 farmland value increased every single year, for Canada as a whole.
“It’s less volatile than gold. The last 20 years, it has appreciated,” Andjelic said, while driving in his truck near Moosomin, Sask.
“Gold, in any one year, could lose 20 or 30 percent. Farmland doesn’t do that.”
Agricultural land is less volatile because it’s harder for the average investor to own a piece of farmland.
Most investment funds probably have gold in the portfolio, which means Canadians with a pension fund likely own some gold. That’s not the case with farmland.
In 2013, the Canada Pension Plan (CPP) was investing in farms and bought Assiniboia Farmland LP, acquiring 115,000 acres of Saskatchewan land.
There was talk of CPP pouring more money into land but that came to an end in 2015, when the Saskatchewan government clamped down and said institutional investors couldn’t purchase land.
Many Saskatchewan producers were happy with the decision. They felt that pension plans and other investors were driving up prices, making it difficult for actual farmers to buy land. Since Saskatchewan has more than 40 percent of the cultivated land in Canada, the restrictions put the brakes on pension plan money flowing into farmland.
In 2020, with COVID-19, massive government deficits, economic uncertainty and horrible yields from bonds, farmland probably looks very appealing to a pension fund manager.
Andjelic gets inquiries from Europeans and others who would like to put their money into Canadian farmland, but there’s a lack of investment ‘vehicles’ to make it happen, he said.
“It’s much easier to play in the gold space, than it is to buy farmland,” said Andjelic, who grew up in Winnipeg and began his career in the masonry business. That evolved into commercial real estate. By the mid 2000s he owned nearly three million sq. feet of commercial space in the city. He sold the business in 2007 and planned to use the cash to re-invest in industrial real estate, but shifted his attention to agriculture.
In the past, he also traded in commodities, including silver, oil and gold.
“Gold, traditionally, has been a hedge against inflation…. I don’t anticipate inflation but there is a lot of money printing and the Federal Reserve buying government securities, which is like printing money…. If that continues there is no reason why gold can’t hit $2,500 or $3,000.”
Looking ahead, it’s hard to know what will happen with farmland ownership regulations across Canada, but it is possible for Canadians to invest in farmland.
Companies and investment firms, provided they are 100 percent Canadian-owned, can buy farmland in Saskatchewan.
A 2017 report, from the Canadian Centre for Policy Alternatives, identified 37 companies or investment groups that own large tracts of land in Saskatchewan. As of 2014, those companies only owned 1.44 percent of the farmland in the province.
Given the low percentage, the figure is probably higher now and will continue to rise.