Hard data is the solid foundation that continues to hold up today's strong agricultural land values. Production potential, commodity markets and sales opportunities are built into per-acre prices more now than at any time in history. It's a trend that's only expected to grow as technology and crop genetics advance, and more precision data becomes available.
Randy Hertz, chief executive officer at Hertz Farm Management, Nevada, Iowa, says all of that data has value, because today's land buyer will pay for quality ground. And, while there are multiple factors that go into defining "quality," two especially hold sway in the market: yields and commodity prices.
"Location can still play a big role in price," says Hertz, explaining that considering the basis price on grains, for example, there can be significant differences in farmland values based on whether production acres are located near processing plants.
"There is often a huge fluctuation in what these plants may pay for grains at any given time, depending on whether they are short of supply. We see similar price influences from ethanol plants and large livestock operations. A lot of land value comes down to logistics, transportation, market price and yield," he explains.
THE YIELD YARDSTICK
Yield mapping and the ability to share collected data take top spots when it comes to catching a potential buyer's attention. Sellers who provide precision yield characteristics of a field by zone give interested buyers a tool that helps them define what, if any, additional investments might be necessary to improve harvest numbers in lower-yielding areas of a field.
Those same quality questions come up a lot today outside of the traditional Midwest crop states, says Jack Davis, Extension crops business management field specialist at South Dakota State University. He adds this is particularly true where larger operations are looking to expand their land base, and they want to add quality, not just acres.
"They will research soils and yield data, and they will recognize that if the potential isn't there, they will have to try to adjust it," he explains. "Buyers are looking for ground that produces year in and year out, whether it's wet, dry or in-between. They want that production potential."
Yield can also be about production practices in a given region. Hertz notes that in some areas, double-cropping goes a long way toward boosting production potential for an acre of ground.
"We are really in a dynamic marketplace today, and it's all about productivity," he says. "In the South, we see double-cropping. In Texas, we see livestock enterprises with the ability to grow a variety of crops for feedlots in the Panhandle, from grains to silage to wheatlage.
"And, in the 'I' states of the Midwest, we see bigger differences in land value between operations getting good yields and those getting spectacular yields," Hertz continues. "There's just something to be said for being a top producer. When you're disappointed with 70-bushel beans or 230-bushel corn, that tells me you have phenomenal yield potential. It's a definite driver of prices."
VALUING SOIL TYPES
Soil-productivity measurements are one of the first things buyers consider when evaluating land. A commonly used measurement in Indiana, Weighted Average Productivity Index (WAPI) has clearly pointed to the ever-growing importance of soil productivity in ag land pricing for nearly a decade.
Pat Karst, vice president of Halderman Real Estate and Farm Management, reported in late 2022 that sales data showed a significant increase in dollars per WAPI point. (See "Understanding Soil Ratings," below.) Karst says his group has been tracking this data for some time and points to the 2013 price per WAPI point of $62.08 in comparison to the 2022 price of $85.64.
The most recent Purdue Farmland Values and Cash Rents Survey shows Indiana farmland prices grew at a record pace in 2022, with increases ranging from 30.1 to 34%. Average per-acre values showed prices of $12,808 for top-quality land; $10,589 for average-quality land; and $8,631 for poor-quality land.
This report traditionally tracks closely with Iowa State University's annual Farmland Value Survey, which had not been released at press time. In December 2021, that survey, which tracks land quality based on a Corn Suitability Rating system (CSR2), showed the higher the quality, the better the value of land on average. For the state as a whole, average per-acre price for high-quality farmland was $11,834; for average land, $9,751; for low-quality land, $6.397.
CLIMATE CHANGE SHIFTS
As corn and soybean cropping areas have shifted north, the value of land has positively reflected the change. The same trend has been seen in other parts of the country, where producers willing to shift crops or explore alternative cropping strategies are boosting revenue potential of land and, thus, its value.
Hertz points to North Dakota as a good example, noting producers there are now raising soybeans with strong yields. And, in south-central Minnesota and the eastern Dakotas, he notes corn and soybeans have viable yield potential.
"You can see there is a longer growing season," he notes of these shifting areas. "There is still a higher risk, because the window to get crops planted in that ideal time frame is narrower. But, with the farm equipment we have today, a producer can plant and harvest a crop in record time, so that helps to manage this risk."
Hertz says buyers today look closely at weather data, noting number of growing days as well as when the wettest months tend to fall.
"Even with narrower production windows, we see producers growing commodity crops profitably, and we see crop-mix changes. It's true in the South, as well," he adds. "In Tennessee, they are raising winter wheat followed by soybeans and having great yields on both. This whole idea of double-cropping really accelerates land values as well as rental rates."
Along with equipment technology, advances in seed genetics have made it possible to shift cropping areas while producing enviable yields despite volatile weather patterns and a mix of growing conditions.
Land farmed using sustainable methods, such as no-till or cover cropping, may be more desirable to certain types of buyers. From a data standpoint, however, it's still difficult to tie value to the production philosophy.
Zach Anderson, a farm real estate sales expert with Iowa's Midwest Land Management and Real Estate, says he's seen a price advantage tied to production style where certified organic ground sells. This makes sense, he explains, because it takes three cropping cycles to transition the land into certified organic.
Beyond that, it remains to be seen how much value a buyer will place on this type of production. Many land experts believe this is only going to grow in importance.
For now, Anderson sees size of parcel offered, location and soil type as the most important factors in valuing ag land in his area.
Tied to production methods, carbon sequestration is another area where the future looks strong.
Hertz says he's seeing producers figuring out how to position themselves to get paid for sequestration and to reap the benefits of cover crops. All, he notes, can be selling points if they are being successfully managed.
Ultimately, it comes down to the environmental sensitivity of the land. When land can benefit from a cover crop, for example, a manager who embraces that ideology and makes it successful adds value. But, it's hard to take someone who doesn't think it will work and make it viable.
"Management is about hundreds of decisions, literally," Hertz says. "And, there is a cost to all of them." He adds, however, the more progressive-minded producers are always finding ways to improve and grow.
"We have to embrace what makes more profit, whether that's conserving the soil or something else," he says. "And, we have to recognize that all of this data we are uploading as we go over a field has real value. That's the takeaway here. We have amazing technology. We need to be willing to share that data, which can certainly be part of our negotiation.
"Data has clear value when it comes to ag land," Hertz continues. "In the future, I think we will see more negotiation around all of this data and the sharing of it. It's not always popular, but transparency is valuable."
UNDERSTANDING SOIL RATINGS:
All the way back to the 1930s, the USDA Natural Resources Conservation Service (NRCS) started to map farmland and note differences in soil types. Today, the USDA's Web Soil Survey is still the single authoritative source. This is a first stop for potential land buyers looking to obtain data on farm soil types. Armed with that information, it's possible to calculate a productivity index.
CSR: The Corn Suitability Rating was developed by Iowa State University in the 1970s. It looks at soil type, slope and weather, and has a 0 to 100 index, with 100 being the best.
CSR2: This newer Corn Suitability Rating is more site specific and uses more precision-farming identifiers, such as a soil's inclusions or subcomponents. It evaluates for soil map unit, including soil depth, climate, environment and expert judgment. This rating goes back to 2013. A key difference between CSR and CSR2 is the climate factor.
PI: A Soil Productivity Index (PI, sometimes called a Crop Productivity Index, or CPI) is an indicator of a soil's suitability to produce a crop. PIs are not interchangeable between states.
NCCPI: The National Commodity Crop Productivity Index uses soil properties, landscape and climate to assign ratings for dryland crops.
WAPI: Used in Indiana and Ohio, the Weighted Average Productivity Index is a summary of soil types on a farm and the PI provided by the USDA/NRCS, calculated by dividing price per tillable acre by the WAPI for price per WAPI point.
-- Follow Vicki on Twitter @myersPF
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