Many entrepreneurial farmland owners are on the lookout for new ground to expand their farm operations. As their land broker, you’re in a unique position to help them evaluate farmland for sale.
Here are some tips to help your clients identify the best farmland for their operational goals. As a trusted advisor, you can help them make the best decision for their long-term growth and financial success.
A recent study from the University of Missouri predicts high likelihoods of financial losses on cash rented farmland in 2023. While crop insurance and other federal protection programs will help most farmers stay afloat, low profitability will almost certainly negatively impact farmland values.
What’s more, a report from Farm Progress shows that farmland values are stabilizing after significant increases in 2021 and 2022. If farmers experience losses, this stability could be placed at risk.
If you have a client who’s looking for the right time to pick up new ground, the likelihood of low farmland prices over the next 12-18 months indicate that this could be it.
There are a number of benefits for landowners to expand their farm operation:
That said, landowners shouldn’t just go out and buy any piece of farmland. There are still risks involved. The more you can help them mitigate those risks, the more value you’ll offer to the client and the more trust you’ll build with them.
When you help clients evaluate farmland for sale, you shouldn’t look at a single factor. Farmland value is a complicated equation, especially considering the fact that each landowner has different needs. Here are some key areas you and your client should consider.
How much value do tenant farmers realize from the land? Often, the lease amount is a good proxy to help answer this question. Note that if you see an upward or downward trend in the lease value over time, this can reveal a good deal about the land.
That said, lease amounts are high-level proxies. So while they can give you a general idea of the quality of the land, you’ll need to dig deeper to know exactly what’s driving that value.
The value of farmland rests on crop or livestock yields. Historical yields, particularly from the previous five years, give you a sense of the quality of the land. Does the field perform above or below the county or state average? This key information could impact whether the land is a good investment.
The quality of your soil is a major factor in your client and their farmers’ ability to realize the value of the land. Different crops thrive in different soils. The higher the quality of the soil the more likely your farmer will be to achieve a high yield.
Two of the major factors that impact a field’s soil quality are historical crops and chemical use. Corn, for example, depletes the soil of nutrients, so corn that’s not grown in rotation will, over time, decrease soil quality. Additionally, indiscriminate use of pesticides and other chemicals can also have an adverse effect on soil quality.
In addition to the soil quality, there are other factors intrinsic to the field that impact its ability to yield value. Generally, farmers prefer rectangular shapes over irregular for easier row planting, flat land over hills, and a generally consistent soil profile across the field.
The quality of water on the land is another factor that dramatically impacts your yield. Issues affecting water quality can include water rights issues, pump capacity, potential future drought, salinity issues, and more.
Additionally, consider the quality of the irrigation equipment. How old is it? Are the engines powering the equipment in good condition? Is it sufficient to fill the farmer’s needs, or will they need to supplement?
You don’t want to purchase a piece of land, then learn after the fact that you then have to pay tens of thousands of dollars for new irrigation equipment. Knowing the water and irrigation situation can help your owner plan for future investments, if necessary.
Although unfortunate, weather patterns impact a field’s ability to generate a good crop. Whether floods, derechos, drought, or other unpredictable phenomena, understanding the field’s climate can help your client anticipate likely scenarios over the course of their ownership.
Growing crops is one thing. Taking them to market is a whole endeavor in itself. If a piece of land is near a commodity distribution center, that makes it much more valuable—whether your client and their farmer are transporting the grain themselves or relying on a third party.
In the same vein as commodity distribution, proximity to equipment repair shops is also a factor in determining land value. Not only that, but it’s a good idea to find out the condition of the repair shops and whether they’ll fit your client’s needs.
Houses, grain storage, and barns all play a significant factor in the farmability of the land. Plus, the ability to sub-lease grain storage or hog, poultry, or dairy facilities can be a major bonus for a tenant farmer. (Make sure you spell the terms of this in the lease!)
Once you and the client are aware of the factors that impact farmland quality, here’s a checklist of questions to ask that will help you both evaluate the farmland:
Although now may be a good time to purchase farmland, that doesn’t mean every piece of land is necessarily a good investment. By helping your clients evaluate farmland for sale, you can help them only invest in land that’ll add value to their operation.
Are you currently looking for available farmland for sale? Check out GroundOS for tools and resources to help you find, evaluate, and manage land.
