For investors wanting to purchase a farm or farms, one of the questions that comes up is how to compare different farms when deciding which one to buy. Often, farms are categorized as high, average or low quality.
In general, that is descriptive and useful for many situations, but may not be enough information for someone to make a large purchase decision. There are a number of ways to evaluate farms, and one of the most used is soil types. But to do the best job, the investor has to have a "boots on the ground" view, too.
Analyzing the aerial and soil-type maps of a farm is the initial look when comparing farms. The aerial map will give a buyer some idea of the farm and if there are observable drainage or erosion problems. The soil types present on the farm are the most used indicator of inherent productivity and crop yield potential.
Each soil type is unique and has a productivity rating or classification. In some states such as Iowa, there is a well-defined soil productivity index that is widely used to gauge a farm's potential productivity. Corn Suitability Rating II (CSR II) is used extensively in Iowa, and each soil is placed on a scale from 0-100, with the most productive soils at the top of the scale. CSR II ratings for a farm are used to compare sale prices and rents.
Today, technology is being used to rate and compare farms. Available public data about a farm, including many pieces of information from soil maps to weather information, is analyzed in a program that can provide ratings of a particular farm and where it falls when compared to other farms in the region.
Land buyers should be careful as these programs or services provide information, but they do not collect critical information that can only be gained by local knowledge. This would include whether there is pattern tile drainage or if the farm is effectively irrigated. These two aspects are critical when putting a value on a farm, estimating yields or renting it.
Ultimately, because each farm is different even though they may look the same, it is critical to have local knowledge and expertise when it comes to comparing farms. In addition to the previously mentioned items specific to each farm, it is important to know how the local land market is behaving and what the local rental market is doing.
In other words, it is important to have the perspective gained from the boots on the ground when evaluating farms to buy.
Dickhut is the senior vice president, real estate operations for Farmers National Co.