The law estab-lished a formula using actual farm data to determine … Second, will be investors, who are likely not prepared for capital losses in farmland values, especially if we are correct that there is a risk that farmland values could decline over an extended period from current peak levels. Farmland is often quite easy, there will be reliable values for cost per acre of productive farmland. Net present value models are mainstream financial valuation tools that discount an asset’s expected stream of future earnings. As many as 20 to 50 have been gathered in making land value determinations when large amounts of money are involved. (We believe investors investing in U.S. farmland, on the basis of the “feed the world” concept, will be severely disappointed.). Given our example, the value of the acre of farmland would decline by 22.2% to $6,667 per acre if the capitalization rate increases by 1% from 3.5% to 4.5% due to a rise in long-term interest rates. Most states have the tax assessor's real estate property records online. While some recent Midwest farmland sales have reached $12,000 to $16,000-plus per acre, it has not been uncommon for sales of high productivity (180- to 200-plus bushels per acre of corn) farmland in Iowa and Illinois to continue to ring the cash register at $8,000 to $10,000 per acre. First, you’ll want to know how to value the farmland. The question for farmers or investors is how to gauge the potential upside potential and downside risk from current farmland values, given the future outlook for key macro/micro variables, such as crop prices/profitability and interest rates. Continued investor interest in buying farmland reflects a number of factors: (1) the continued global rise in crop prices; (2) recognition that the financial returns from farmland have dramatically outperformed the stock market and most other investments over the last few years. Against this backdrop of strengthening food demand is the general view that global arable land and water is limited. If the new heirs use the estate appraisal to determine a selling price, they may be basing their decision on market data that is up to 2 years old. • Market Myopia — The Power Of The Dark Side, • Too Much Of A Good Thing Can Spoil Ag’s Party. Is it public or private? Over the next two to three years, discount rates can be expected to rise, reflecting an increase in the interest rate for the 10-year U.S. treasury note from current 2.1% to at least 3.5% to 4.5% over the intermediate term. During the last run-up in farmland values, using a year-old appraisal could have cost a seller 20% or more. The only offset to sustain the value of farmland would be a dramatic rise in rents from $300 per acre to $385 per acre, which is highly unlikely if crop prices and profits are under significant downward pressure. The capitalization rate, based on actual average farmland rents and values from Iowa, has trended down from 7% to 9% in the early-to mid-1970s and a high of 11% to 12% in the early to mid-1980s (reflecting the aftermath of the farm crises) to the current range of 3% to 4%. The most important driver could be a market-driven realization that there is a right and wrong time for farmland investment, based on under-valuation and over-valuation. It will tell you acreage, market value, taxes, land use, improvements, etc. The most common method is the market value method. A broker’s price opinion (BPO) is not an appraisal. Shimoda is founder and president of BioScience Securities, Venice, CA. Capitalization rate valuation models have limited predictive value. Producers should have and maintain a risk management plan that considers possible economic changes to ensure budget flexibility if commodity prices, yields or interest rates shift. Research the market value of land yourself by gathering comparable sales data in your local area. Currently, ag dealers and the basic suppliers of inputs (ag chemicals, seed and fertilizers), machinery and services are benefitting from the mega profit levels generated in many sectors of agriculture, especially Midwest agriculture. 4. Market Myopia — The Power Of The Dark Side, Too Much Of A Good Thing Can Spoil Ag’s Party, A Valentine's Love Letter From AgTech To The Financial Sector - Mixing Bowl, Ag Retailers Plan to Spend More on Crop Nutrients in 2020, Tracking Evidence of Strength in Crop Protection Segment, Yara Expands Southeast Distribution Support with Port Canaveral, Leveraging Agronomic Data to Optimize Nutrient Applications, Improve Crop Performance, How Hays LTI Has Kept the ‘Family Feeling’ for Half a Century. Get an appraisal. Fields Parcels CLUs Land Sales Sold Land Land For Sale Land Valuation. 3. In addition to the long-term up trend, Midwest farmland values have more than doubled over the past six years. In 1977, the Illinois farmland assessment law was enacted to value farmland—for the purpose of taxation—based on its ability to produce income, rather than a value based on the farmland’s market price. Iowa Land Company doesn’t rely on a computer program to determine your land value because we know that if you’re considering selling your farm, it’s one of the largest financial decisions of your lifetime and like any harvest, a lot of work comes first so we want to give you our one-on-one traditional farmland … One strategy to determine a fair rental price is to look at current rental values for similar properties nearby. Get the annual crop income by taking the total crop revenue minus the total production cost (including family labor and taxes). Decide how the land will be used. Determine the approximate FMV or actual sale market value per square foot, meter, or cost per acre of these properties. She is co-author of two books on anabolic steroids. Potential strategic shift in how farmland is valued. For instance, in B.C.’s Okanagan region, 2019 farmland prices ranged from a low of $9,500 to a high of $163,800 an acre. Topography, terrain and access are important. British Columbia and the four Atlantic Provinces were the laggards, skewing the data downwards. It's a little different than trying to determine the value of a residential or commercial property. That can be a costly mistake. Factor in the inflation rate from the present until a change is planned. Downstream suppliers will also be subject to an expected growing risk of potential farm customer defaults. At USDA’s annual Agricultural Outlook Forum in February, USDA Chief Economist Robert C. Johansson pointed out that, “As farm income has fallen over the past few years, farm equity has also fallen, but it is only down about 5 percent from the peak in 2014, stabilized by high land values…with low commodity prices, farmers have increasingly tapped into their real estate equity to provide operating funds. The 2015-2019 average corn and soybean yield was 198 and 57 bushel per acre, respectively. Farmland values reach a strategic inflection point. The widely used valuation framework (capitalization of rents, or income) used for the valuation of farmland today, in our view, has become obsolete, given the dramatic volatility of change in key variables that affect farmland valuation, namely crop prices, crop yields, crop profitability and interest rates, which have occurred over the past five years and are expected to continue. While farmers have experienced crop price and profit cycles over the last 25 years from the mid-1980s, farmland values, as exemplified by Midwest farmland, have appreciated almost every year over the past 25-plus years. Is it graded or paved? This is the larger piece of the pie when it comes to selling, so you’ll want to make sure to ask a fair price for it. 3. "One hundred percent of the agricultural land value data we use for making loans is obtained through independent, certified appraisers," says Dockey Brasher III, vice president and senior loan officer of Citizens Bank, Crawford County, AR. Land value ($/acre) =annual net crop income ($/acre)/alternative annual % interest rate. If the student's parent's share of the property is 25%, determine the current fair market value of the property and then divide by four. Land may be valued or taxed differently depending on its use. In addition to our corn price and profitability expectations, the greatest risk factor to current farmland values is the future direction of interest rates, the return on alternative investments. Finding Your Farmland – Section, Township, and Range Numbers On the left side of the screen, under “Quick Navigation” click on “PLSS (Section, Township, Range).” Click on “Iowa” from the pull-down state menu and then enter the “section number,” “township number,” and “range number” for the tract of land. Estimate the value of land already in agricultural production. The alternative annual interest rate means what your return might be from investments like CDs, stocks and bonds. Falling profits and farmland values create risks for ag dealers and the supply chain. Nevertheless, you can still estimate its value by hiring an experienced appraiser. Investing in farmland? Farmers and financial investors continue to invest in farmland, especially Midwest farmland. For example, if a farmland has cash rent of $300 per acre and the current capitalization rate is 3.5%, the value of the farmland today is $300 divided by 3.5%, or $8,571 per acre. The average value of Canadian farmland increased 5.2% in 2019, following a gain of 6.6% in 2018. Consult a real estate agent or a licensed appraiser. In some cases, as in most California wine country, zoning can determine whether the land can be used for a vineyard. Keep in mind that your land’s value isn’t limited to what it might be sold for. •Â Crop Prices — Downside risk to corn prices of $4.25 to $5.25 per bushel from current $6 to $7 levels. The average annual interest rate for the 10-year U.S. Treasury note has declined from 10.6% in 1986 to an estimated 2.8% in 2011. Even if the resurgence of the well recognized La Niña weather pattern does a repeat performance in 2012, constraining yields, production, and a buildup of stocks in 2012, the peak and downward cycle will only be delayed by another year.
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