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America's best farmland bargains

03/04/2014 @ 11:02am

Farmland bargains.

Sounds like a joke, right? Is there any farmland today that sells at a bargain price?

Absolutely. It may not be next door or even in your own state, but there are some good investments out there and crops to grow that will return enough cash to make a land payment.

About a year ago, we heard of farmland in north Missouri -- just south of the prime Corn Belt -- that sold for $1,400 an acre. Considering that the entire state of Iowa now averages over $8,000 an acre (latest USDA farmland report), that struck us like a bargain, without even knowing what it looked like or its productive potential.

That made us wonder: Could it pay for itself in crop returns? Where else could you find farmland like that? If you borrowed every penny of the purchase price (which, of course, no bank would let you do), could it generate the income to make the annual land payment?

So, we went shopping. As it turns out, the Missouri land will pay for itself with good management and an annual crop of grass and stocker calves. A Wisconsin irrigated farm will pay for itself with a good potato crop. In Oregon, it’s a grass seed crop.

With each bargain, we show the costs to grow and the expected returns on a crop that is common to that area. We used recent Extension estimated budgets to grow the crop and a modest sale price expectation. In our calculations, we paid a return to labor and management, plus all other expenses (except for a land charge). What’s left over between the costs and returns could be applied to the land payment, and it gives us a basis for saying this land could pay for itself on a 20-year loan at 5% interest.

Know this: Margins are tight on farm ground. Return potential usually gets bid into price. Farmland expert Mike Duffy of Iowa State University points out that if you think a piece of ground is a good deal, somebody else probably does, too. Investor groups are scouring the country for the same farmland bargains that we uncovered, hoping to find land that will show a 4% or 5% return. Bargains don’t last for long.

Here are some observations for you to consider as you review this list of America’s best farmland bargains.

Off the Beaten Path

Bargains typically aren’t in the heart of the Corn Belt. Competition for those flat, deep soils in square fields is what drives farmland beyond its ability to pay for itself. Bargains tend to be off the beaten farm path and in class B and C soils. The ground may not be flat; the topsoil may be shallow. It may take more TLC to farm it.

For instance, the Delta region along the Mississippi River in Arkansas, Louisiana, and Mississippi has been a hot spot for bargain hunters in recent years.

“It can grow 200-bushel corn or more, just like Illinois, but we have a shortage of farmers who know how to do that,” says Ted Glaub, a farmland Realtor in Jonesboro, Arkansas. “You may have to level it off, add irrigation, clear some brush, or bring in some new technology. Then, I see a golden opportunity.”

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