How to Evaluate the Worth of Farm Land Acreage
As the U.S. Department of Agriculture points out, farm real estate values are critical for farmer-landholders to ascertain for a variety of reasons. Farm land is the principal source of collateral for loans, in addition to being the basis of farmers' retirement funds. Changes in the value of acreage over time are of the utmost concern for farmers, who must weather a lifetime of drastic shifts in the economic climate at large and manage site-specific features that could affect the value of their parcels in unexpected ways.
There are different ways of looking at the value of a farmland property. The acreage can be viewed in terms of its market value -- the price it would fetch if sold -- and it can also be evaluated in terms of its use value. As the Virginia Cooperative Extension points out, all 50 states have some form of taxation based on use value, which is a way of assessing land according to the value derived from what is produced on the land. This type of assessment lessens the tax burden on owners, who thereby have an incentive to preserve the land.
Purdue University Department of Agricultural Economics shows how use value assessment of farm land in Indiana works. You start with a base rate, which is the same throughout the state and varies from year to year. In 2012, it was $1,500 per acre. Multiply the base rate with the land's soil productivity factor, which is predetermined by agronomists for different soils and ranges from 0.5 to 1.28. The resulting "adjusted rate" is then multiplied by an "influence factor," which accounts for vagaries such as floods. What you end up with is the assessed use value of the farmland acreage.
Every parcel of land is different and has its own set of attributes. Soil quality, proximity to distribution channels, and types of applicable federal farm subsidies vary with the land and influence land values. The U.S. Department of Agriculture finds that while there is some correlation between high quality of soil and farmland values, there is quite a bit of regional variation, along with some overriding factors that can eclipse the soil's impact on value, such as proximity to urban areas. News source Ag Web notes that the highest-valued cropland as of 2013 was in New Jersey, at $12,800 per acre, followed by California at $10,190.
A number of non-farm-related factors come into play to ultimately shape the value of any given plot of farmland. The USDA points to the "amenity value" of the land, which can amplify the price of the land in a non-agricultural manner, whether by tranquil vistas or a mild climate that make the surroundings especially appealing to owners. Access to transportation is another non-farm factor affecting farm land prices, as the farther away a parcel of land is to major highways, the lower the per acre value correspondingly becomes.
- New Entry Sustainable Farming Project:
- Ag Web: Growth in Farmland Values Slowing but Still Hot
- Mother Earth News: How to Buy Farmland, Even If You Think You Can’t
- United States Department of Agriculture Economic Research Service: Trends in U.S. Farmland Values and Ownership
- Purdue University Department of Agricultural Economics: Farm Land Assessment for Property Taxes
- Virginia Cooperative Extension: Determining the Use Value Of Agricultural and Horticultural Land In Virginia
Timothea Xi has been writing business and finance articles since 2013. She has worked as an alternative investment adviser in Miami, specializing in managed futures. Xi has also worked as a stockbroker in New York City.