An Imperfect World – Land values are not a mathematical equation
I have learned two important lessons over my lifetime, “the house always wins” and “land is always overpriced”.
Most of my life is spent in data and analytics. Whether that is financial analysis, operational efficiencies, or how to pay the bills at month-end, I am a recovering accountant. But there are two areas where I have yet to find a mathematical equation that works, roulette and land values. To assume that we can predict the rise and fall of land is an old wives’ tale. One that has cost many farms opportunities and wealth along the way.
A few years ago, a commodity hedging acquaintance had told me they had figured it out and broken the code. Coming out of the pandemic, they had identified an algorithm that, based on past probabilities, could beat the market on grain hedging. Two geopolitical wars, a trade escalation, and a government focused on environmental policy later, and I think we can put that to bed. We live in an imperfect world, to believe anything else would be irresponsible.
So, when an article about land values states with such a belief that we are heading back to the 1980s, I go back to the drawing board. You wouldn’t compare a new Corvette with a Model T, so why would you believe the industry today is the same as forty years ago? You wouldn’t.
Wealth Accumulation and Liquidity
The last decade has been a great time to be in agriculture. Even with the significant volatility, farms today are considerably ahead on wealth and liquidity than in the past. Internally, our client base has 61% higher working capital than five years ago, which equates to around $1.5M more cash hidden under the mattress. They accomplished this while also increasing their acre base by 38% (around 5K acres per farm) and gross revenues by 82% (around $4M per farm). This doesn’t even touch on equity and asset accumulation, which are well above 80% and 90% respectively.
So, when you state that land is unprofitable and cannot sustain its current values, I have a hard time crunching the numbers. Are costs up, yes. Is the risk higher? Yes. Are farms still buying land like the 5-cent candies down at the corner store? Yes. More land is trading hands today than I have ever run numbers in my past career in the public accounting world. Supply and demand tell me we aren’t cooked yet on land valuation.
Consolidation
Like it or hate it, 2% of the farms today own greater than 60% of the acre base in Canada. Do I see the next decade having the largest wealth transfer of land that agriculture has ever seen? I have stated this emphatically. Do I see this land going to a much smaller subset of farms than ever before? The data says yes.
In 1980, the average farm size in Canada was 540 acres; now, in 2025, the number is closer to 850 acres, with much of the growth post-2000. These numbers are low for my area in Western Canada where I currently don’t have a client under 5,000 acres, and most are 15,000 acres or more.
Farms today are not the same as in 1980. They are multi-million-dollar business ventures with high risk, but also multiple facets of risk mitigation, diversity, business acumen and resources never used before in agriculture. Long-term interest rate swaps have reduced the chance of interest rate effects on borrowing or purchases, and multiple revenue streams and insurance products have reduced the volatility of loss. The quote I use too many times in these blogs is, “Toto, I’ve a feeling we’re not in Kansas anymore”.
Supply, Demand, and Competition
For those who say that land is not profitable at these values, you are not wrong. I would argue that current land values have very little to do with profitability. This is why trying to find perfection in an imperfect world is impossible.
I have seen land trade in “brown soil” zones at values that outpace “black soil”. This is significantly uncontradictory to the theory that land value is based on profitability. Land values today are based more on competition and supply, and demand than ever before. Find an area with three or four large-scale consolidated family farms, and I will show you an area with high land values. On the other side, find a hidden gem where only one or two larger farms exist, I will show you a much slower appreciation curve. Supply, demand, and competition are what drives today’s land market.
And let’s not forget about the elephant in the room. The largest landowners in Western Canada outside of a few select farms, are private equity or independent investors. I would like to say these land values are chasing them away due to the lack of return on investment, but this is happening at a much slower rate than anticipated. When the stock market is volatile, family offices find safe places for cash, gold and land. I would argue we are seeing an uptake, not a dissolution of private equity in farmland.
Careful What you Wish For
The idea that a drop in land values will make the barrier to entry simpler is also a slight fallacy. Will it allow young producers to be able to afford land? Most likely. Will it allow young producers the ability to compete and obtain land? I don’t believe so.
In my days of growing up on the farm, you could acquire or rent one quarter at a time. These days are long gone as with consolidation comes the fact that when farms sell, they sell at a much larger scale. A 3,000-acre farm does not sell one quarter at a time; they sell all 19 quarters to one buyer. The price per acre to purchase may fall, and the ability to afford the entire parcel and have access to the land will remain unattainable for most.
And remember, a lower land price does not remove the competition from the larger scale operations, it makes it easier for them to pay a premium over your bid.
Crystal Ball – I don’t own one
This is nothing but an opinion piece. The truth of the matter is that I am very aware that I could be so far wrong that this will make me look foolish. But, on the same account so could an article about using historical probabilities to predict a crash in farm value so far beyond anything in history. Which one seems more far-fetched?
I don’t write in absolutes; we live in an imperfect world.
