Long term view a motivator in rating farm/ranch investments

I might have titled this: “Is it worth keeping the investment in your farm or ranch?”

I might have titled this: “Is it worth keeping the investment in your farm or ranch?”

I have chosen the general term of “returns” meaning not just financial returns.

Other technical financial measurements would be Return on Investment or ROI (what you have actually invested) and ROA (or Returns on Assets) actual market value of your property and other capital.

It is the long-term view that motivates me.

This view reflects values other than maximizing or optimizing short-term financial values, for example security of a place to raise food for possible difficult times now or in the future.

We don’t want to be foolish and spend lottery winnings, outside income or savings

In a system that has been keeping food prices relatively low,we spend about 10 per cent of our income on food compared to 20 per cent  a few decades ago.

If we include all the external costs  (e.g. soil depletion and environmental impacts of improper fertilizer use, like the contamination by nitrates in the Fraser Valley aquifers) and add these costs onto the price of food we perhaps should be paying 20 per cent of our income on food.

Someone told me that buying sustainably raised food they pay just over 20 per cent on food.  Farmers should be challenged to keep prices and costs down as much as possible and consumers should be ready to reward farmers for their real economic costs, including a fair wage.

Now, I am going to cite Allan Nation, who publishes the Stockman GrassFarmer, and who has written many books on the economics of grassfarming, which includes cattle ranching. His notes and facts appear in the June, 2016, edition of the magazine.

His facts are based in the U.S., but I suggest they apply here in Canada. Let me begin with one fact: only three percent of today’s land buyers are farmers. This is disturbing.

Recently I read what I have commented on in recent years: that is that the Chinese and others who are buying our commodities (hay, grains, beef, etc.) are really buying water. Remember it takes six to seven tons of water to grow one ton of grain.

Buying land is a longterm investment in food security for foreign government entities and corporations with a diversified investment base. Twenty years ago Asian corporations were buying farmland in the Fraser Valley as a secure investment, ever increasing in real value.

Water shortages or surpluses will increase the value of land as an investment and will provide farmers with possible increase in operating profits.

Allan Nation in Knowledge Rich Ranching said that the 200 year return to ranching,  has been five per cent.

This is done by buying underdeveloped ranches and investing in land and water improvements. Not all of us want to sell out to realize returns.

A few years ago I heard an investment consultant who found a market for “patient capital” investors who only wanted a one per cent return on investment.

The security of having money in land offsets the volatility of other capital investments.

The Ranching for Profit economics and training/consulting outfit says 10 per cent is a good goal for any new investments.

Nation quotes a study that says that the top 15 per cent of American cow-calf producers earn 22.2 per cent return on investment.

Of course the objective would be to make wise investments and not be asset rich (including land) and cash poor.

I am in the patient capital school.

I am willing to see a smaller return if the land is sustainably managed.

That is for the land and water part of the investment. For the rest of investments, I don’t see anything wrong with the three to five per cent return.

Jared Diamond has written in Collapse that the long term several hundred year Return on Investment in Mining has been about four per cent.

For my money I will keep the land investment as a place to raise succeeding generations, to teach them that they are citizens of the earth (stewards) as well as citizens of civil society.

We were all born to try to be survivors and thrivers, not just consumers of the material world.

 

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