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10 Factors that Drive Farmland Value

December 13, 2013
By: Sara Schafer, Farm Journal Media Business and Crops Editor
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Here are the big-picture issues that affect the worth of your farm

Soil type, drainage and location all play into the dollar value of your farmland. But as the agricultural industry becomes more global, so do the factors impacting your farm.

"In agricultural economics, a lot of issues are linked together," says David Kohl, professor emeritus of agricultural economics at Virginia Tech. "Sometimes you have to take step back, think strategically and connect the dots."

"People have an intuitive sense of what their land is worth," says Tim Hopper, chief economist at TIAA-CREF, a financial services and investing organization. Yet to stay ahead of the curve, he says, farmers should think beyond their farm gates. Here is some food for thought on the macro issues that affect your farm’s value.

1. Global population growth

The world’s population is forecast to reach 9 billion by 2050. While that is a significant increase from the current 7 billion people, Hopper says the key issue is population distribution.

"The areas of the world that have growing populations and caloric needs also have increasing incomes," he says. But in many of those places, agriculture cannot expand to meet this growing demand. Therefore, productive land in other areas of the world increases in value.

2. Water

Like population, water is not dispersed evenly around the world. Hopper says trade allows us to move products from where we have water to where we need water. "Trade in crops is basically trade in water," he says.

While water issues are more pronounced in other areas of the world, recent prolonged U.S. drought conditions have made water supply a national hot topic. Kohl says water availability, either through irrigation or drainage, will factor into farmland value. "Top-quality farm ground, with water under it or near it, is a premium," he says.

3. Wall Street

High farmland returns have attracted the interest of investors, landowners, lenders and operators, adding more competitors at farmland auctions. After 2008, several funds realized a lot of their diversified portfolios weren’t as stable as originally thought, says Bruce Sherrick, University of Illinois professor of agricultural and applied finance.

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RELATED TOPICS: Farm Business, Land, Economy

 
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