Canada Pension Plan/Assiniboia Land Purchase Is Bullish For Western Canadian Agriculture

Includes: NTR
by: Bob Evans

On Thursday Dec. 12, the Canada Pension Plan Investment Board (CPPIB) announced that it had purchased 115,000 acres of Saskatchewan farmland from Assiniboia Capital Corp. for $128 million. Recently there has been much discussion in the Sask farm community about whether or not the 5-year bull run in provincial farmland is over. The purchase by CPPIB suggests that a major institutional investor in Canada thinks there is life left in SK farmland.

Saskatchewan produces roughly half of the grain in western Canada but average farmland values in the province have lagged behind both Manitoba and Alberta. Saskatchewan's population has hovered just under 1 million people since the early 1930s. Over the same period, Alberta went from roughly 1 million to a current 3.7 million. Farmland prices in Alberta benefit from a robust energy and agricultural economy as well as roughly three times the population of SK. Recently Saskatchewan's population has started growing again reflecting a growing provincial economy that has benefited from resource and agricultural growth. That growth in population reflects optimism in the province and that optimism has become capitalized into land values.

Saskatchewan's land values are still significantly below those of Alberta and Manitoba but averages can be deceiving. Land valuations are a complex amalgam of perceptions and reality. Industrial uses and urbanization can drive value more than agricultural productivity. Much of Saskatchewan's land base is less productive and sparsely populated. When Captain John Palliser visited the SK prairies between 1857 and 1860, he described the area as a barren wasteland unfit for human habitation. In dry years, much of the province still resembles that characterization.

The harsh prairie climate has however driven agricultural innovation. The advent of zero or minimum tillage has enabled consistent farm output through extremely dry years as well as stabilizing incomes through excessively wet years. Recently SK inventors like Jim Halford, Pat Beaujot and Jerry Bourgault have created world scale companies based on innovative seeding technologies that conserve moisture and enable production under arid or semi-arid conditions. Their work has built on innovations from the 1930s by names like George Morris & Charles Noble. Prairie farmers turned inventors have created technology that has revolutionized farming in North America and around the world. That technology in turn is driving grain production on land that would previously have been unfit for farming. An obvious example of this trend is the spread of canola production in western Canada from its start in the moist soil zones of northern Saskatchewan and Alberta into the semi-arid southern portions of both provinces and across the border into the northern states.

There are opportunities to invest in SK ag either directly through farmland purchases or indirectly through related ag investments. Potash (POT) and Agrium (AGU) are heavily invested in western Canadian agriculture. Agrium recently increased its stake in western Canada by purchasing the retail assets spun off from the Glencore's (GLEN:LN) acquisition of Viterra's (VT.T) western Canadian assets.

Disclosure: I am long AGU, POT, DE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I have done contract work for Assiniboia Capital Corp.