Print

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.”

Adds Farmers National Company land broker Sam Kain, “Some buyers don’t want a property that is going to take a lot of time and maintenance. Well, the best opportunities often take the most TLC to turn it into a really nice farm. They’re management-intensive farms. If you’re willing to do that, I’ll find you a bargain. The opportunity may only present itself for a day or two, so you have to be ready to make a move, or it will be gone.”

Finding a chunk of farmland that would constitute a full-time farm is not easy anywhere. In some of our bargain spots, land tends to sell by private treaty, rather than auction.

“Our culture here is not to get into a bidding war in a farm neighborhood,” says Arlin Brannstrom, University of Wisconsin economist.

Tillable Percentage

Comparing farmland is never apples to apples. A big issue is tillable acreage. A flatland farm in the Corn Belt or Plains may be nearly 100% tillable, but don’t expect that in bargain country. A farm may be 70% tillable, and the purchase price may or may not reflect that.

In Wisconsin, farms are often sold on the basis of wet acres – those that fall under a pivot. The corners are deemed almost worthless to a potato farmer.

Alternative Crops

The crop expense and income numbers shown for the bargain areas give you a glimpse at a crop that is common and has been profitable. In recent years, corn has been a good profit producer almost everywhere, including most of the bargain zones. But, $4 per bushel changes things; other crops may now work better.

The 20-year, 5% interest amortization schedule computes to about $80 per year per $1,000 invested.

One State Over

Crossing state lines for a land bargain may have advantages you haven’t considered. That far away, the crops and the weather are different, adding diversification to your farmland port-

folio. As you move south, you pick up additional cropping options compared to the Midwest, says Hunt Stookey of Ceres Partners, a farmland investment company. “You have more opportunities to make money,” he says.

Says Roger Hayworth, a Farmers National land broker in Indiana, “A bargain farm to one person may be way too high to someone else. We have farmland selling every day, and much of it looks to be too high. But you know what? Some buyer saw it as a bargain.”