Starting a farm: Looking for land

The high price of farmland is the most common complaint of new farmers, and with good reason; both crop and pasture land is selling at an all-time high. Price tags are highest in America’s Heartland, specifically Iowa, Indiana, Illinois and Ohio.¹ Iowa leads the pack in U.S. farm real estate value. In 2013, prime central Iowa farmland sold for $17,600 per acre.²

Always on the look out to expand our farming operation, my husband and I often attend southern Ohio land auctions. The last land auction we attended was made memorable by the $1.2 million winning bid on just more than 200 acres of tillable land. There was no house or barn mind-you, just flat, rectangular fields with a history of efficient production.

I left the auction feeling discouraged about our land prospects. Actually, a more accurate description of my feelings is irrational. On the ride home I suggested we move to Mexico, where farmland is affordable.

“Or Russia,” I said, “it’s the most fertile soil in the world!” My husband thought I was kidding.

“Well, maybe not Mexico or Russia, but why not Wyoming?”

Not only is land cheaper out west, but prices are increasing at a much slower rate. The exception is California, where the price of land is more akin to the Midwest than neighboring states.¹

There are less than 800 miles between the most expensive American farmland in Iowa, and most affordable land Wyoming. I can’t help but wonder if the price difference is justified? The answer to my question begins with a look at what makes land valuable to farmers.

Land value

Land is like all real estate in that there is no absolute worth; value is in the eye of the beholder and buyer. But land having certain characteristics is always more valuable to farmers. High quality soil, air, and water are critical to agricultural production. Additionally, land with physical and chemical characteristics favorable for producing food, feed, and fiber, make farmland prime. The USDA National Agricultural Statistics Service divides farmland value in two: crop and pasture, because land well suited for growing crops is always worth more than land only suitable for pasture.¹

Some factors driving up the price of land have nothing to do with the land itself. Interest rates to finance land are historically low. There is also less farmland on the real estate market, and low supply pushes up price.

America’s Heartland has well established market channels that aid agricultural production and profit. Farmers rely on these channels to move agricultural products in a timely manner. Remote farms must factor in the added hassle and cost to moving products outside market channels. This explains why my husband isn’t keen on moving to Mexico or the former Soviet Union to find affordable farmland.

A final factor driving land price is that established farmers looking to expand are willing to pay more for land close to current operations. It makes financial sense for farmers to pay more for home turf because they can work it with existing equipment, knowledge and labor resources.

Why not Wyoming?

Applying what I learned about land valuation to my question- is the price difference between farmland in Iowa and Wyoming justified?– It is clear that fertile soil, quality air and water coupled with grassy, high base conditions make Iowa farmland more suitable to grow profitable commodity crops. Iowa’s deep history of farming keeps market channels close, and current farmers closer.

But new farmers willing to change their plan to suit the land, have discovered rocky western farmland can still be prosperous and profitable. Running the right breed of livestock on low priced western pasture works well for some farmers. Others find specialty crops fit for the arid climate.

Hitch up the wagons

Many Northeast and Midwestern farmers have headed west for the same reasons as the original pioneers: more space, more opportunity and cheap land. A study from Elizabethtown College on Amish Population Trends 2008-2013, indicates three western states, South Dakota and Wyoming, and Idaho, have gained new Amish settlements that did not have any prior to the study.³

Certainly homesteading on the range isn’t for everyone, but it’s worked out well for the Amish. In the last five years, some western Amish settlements have doubled in size.

The future of farmland value

Word in the field is that the price of land is expected to stay high as long as farm-income keeps up and interest rates stay low. New farmers might want to hitch up the wagons and head out west, or consider other alternatives to access land and fund their farm dream.

• ¹ “Charts and Maps: Land Values and Cash Rents.” National Agricultural Statistics Service. USDA, 2 Aug 2013. http://www.nass.usda.gov/Charts_and_Maps/Land_Values_and_Cash_Rents/farm_value_map.asp
• ² “Prime Central Iowa Farm Brings $17,600 an Acre.” Landowner. vol. 34 iss.19. 10 Oct 2013. Agweb.com. http://www.agweb.com/assets/1/6/LandOwner%20for%20October%2010,%202013.pdf
• ³“Amish Population Trends 2008-2013, 5-year Highlights.” Young Center for Anabaptist and Pietist Studies at Elizabethtown College. http://www2.etown.edu/amishstudies/Population_Trends_2008_2013.asp