Your money – Fifty years of returns on farmland
Agriculture was in a period of great turmoil when FCC first opened its doors in 1959. The country was in the middle of the great post-war economic boom. High-paying jobs in the cities were plentiful, suburbs were sprouting and farms were disappearing in droves.
According to agricultural census data, more farm operations disappeared between 1956 and 1961 than in any other five-year period on record. During these years, the number of farms in New Brunswick and Nova Scotia dropped by nearly half.
Even though the national number of farms in the 2006 agriculture census is less than half the 1959 number, the amount of farmland has remained remarkably constant, around 67.5 million hectares (166.8 million acres). This apparent discrepancy is sorted out as soon as you look at average farm size. A typical farm was 122 hectares (301 acres) in the 1961 census and 295 hectares (729 acres) in 2006.
Modern farms are also much more productive. Canadian dairy farmers, for example, are producing almost the same amount of milk today as they did in 1959, but they do it with just one-third of the cows. The average corn yield in 1959 was 63.7 bushels per acre, sold for $1.16 a bushel and generated $73.89 per acre in gross revenue. The 2008 average corn yield was 144.4 bushels per acre and the average price of Canada No. 2 corn Chatham was $4.87 a bushel, generating gross revenue of $703.28 per acre.
If you convert grandpa’s $73.89 gross revenue per acre of corn in 1959 into 2008 constant dollars (taking inflation into account), he would have grossed $563.11 an acre.
It’s a similar story with wheat. The combined average of all classes of wheat in Canada was 18.2 bushels an acre in 1959 and sold for $1.32 a bushel, generating $24.02 gross revenue per acre. The 2008 per-acre average was 42.4 bushels. Using the estimated Saskatchewan price for No. 1 CWRS with 12.5 per cent protein, $6.34 a bushel, would produce $268.82 gross revenue per acre. Grandpa would have grossed $183.57 if you adjusted his price into today’s dollar.
Excluding supply management sector quota, farmland has been the best investment for most producers. When FCC arrived on the scene, land values had been rising steadily since 1941. By 1959, the average price of Ontario farmland had jumped 52 per cent, climbing from $82 to $125 an acre in just five years. It was the same story in province after province. While land in Saskatchewan only rose from $20 to $26 an acre, that was 30 per cent.
When 1959 prices are converted into 2008 constant dollars, land prices back then were a bargain compared to current prices. For example, $125 in 1959 would be equivalent to $955 in 2008. According to Statistics Canada, an average acre of farmland in Ontario sold for $4,593 in 2008. That’s more than four and a half times higher than it sold for 50 years ago, after the constant dollar adjustment.
Any way you look at it, owning farmland has been a good long-term investment. The increase in real estate value of an average acre of Canadian farmland has generated a 7.11 per cent compound rate of return every year for the past 50 years.
Average value of an acre of farmland in 1959 and 2008
Table based on Statistics Canada data
*Compound annual rate of return over 50 years
**1959 prices converted to 2008 constant dollars
Your money – Farm equipment costs: then and now
It’s a common perception that farm equipment is much less affordable now than 50 years ago. There are many ways to make the comparison, but consider the reasoning below.
As mentioned on the previous page, an average corn yield generated $73.89 per acre of gross revenue in 1959. But according to the 1961 census, the average Canadian corn grower planted only 19 acres of the crop. So the average farmer’s gross revenue from corn would have been $1,404.
The same year, a brand-new 54-horsepower Case 800 tractor sold for $5,200. So it would take the entire production of slightly more than 70 acres of corn, or 3.7 years of total corn revenue, to buy it.
Wheat averaged $24.02 gross revenue per acre that same year. A typical wheat grower planted 122 acres, and would have grossed $2,930 from a crop.
John Deere introduced their first 100-horsepower tractor, the 5010 model, in 1960. It would take the entire production of 416.3 acres of wheat, or 3.4 years of total wheat production, to cover the $10,000 retail price.
Last year, an acre of corn generated an average $703 of gross revenue. The 2006 census data showed a typical corn grower plants 128 acres of the crop. That’s $89,984 in revenue.
The same census showed wheat growers plant an average of 400 acres. Multiply these acres by the average yield of all wheat and the expected price for wheat in Saskatchewan, and you arrive at revenue of $107,528.
A 100-horsepower tractor like a John Deere 7230 retails for about $95,000, depending on the options. It would take just a shade more than 135 acres of corn or 372 acres of wheat – about one year’s production in either case – to buy it today.
Your money – Farm productivity benefits the average family
Gas was just 25 cents an imperial gallon (5.49 cents a litre) in 1959. The wholesale price of eggs was 49 cents a dozen, butter was 65 cents a pound and a loaf of bread sold for 20 cents.
By today’s standards, those prices seem amazingly low – but incomes were much lower too.
According to Statistics Canada, the average 1959 family living in a city with a population greater than 15,000 spent $1,207 on food, or 23.6 per cent of its total expenditures. In 2007, we spent $7,305 – just 10.5 per cent – on food.
The savings are significant. If consumers had to pay as high a percentage of their incomes on food as they did in 1959, they would have to use the 82 billion after-tax dollars that are currently being spent on new cars, trips and home improvements.
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