BEEF Daily

How Much Can You Pay For Land?

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One of the biggest challenges facing producers today is the rising cost of land. In fact, I recently read that the price of land is the number-one concern of young farmers and ranchers today, with many finding it nearly impossible to compete against established ranchers and obtain the necessary credit to make the purchase. And, once a purchase is made, does the investment pencil out?

There is certainly great risk in purchasing high-priced farm ground. Is the gamble worth the cost?

A recent article in KPC News offered some words of caution for perspective buyers, as well as some advice for renters.

For buyers: One of the dangers is that buyers’ expectations about the future of the market could be wrong and land values or commodity prices could decrease, which can really change profit margins. Buyers need to be careful because farm debt levels will affect how hard the fall could be if commodity or farmland values decrease.

For renters: With the strong market, rental prices for farmland also have been on the rise. If not on a fixed traditional agreement, consider getting creative about the terms of the lease. In a flexible lease agreement, or variable cash, the landlord and tenant agree on a minimum amount of rent and share a portion of the profits. In a crop-sharing agreement, the tenant and landlord both invest in the production costs and share the crop yields after harvest. Both types of agreements help tenants and landlords share the risk associated with crop farming.

Read the entire article here.

For additional reading, check out, “Rising Farm Values Changing Mix of Property Taxes.”

What lessons have you learned when establishing leases for land? What advice do you have for people when looking to purchase a piece of ground? What concerns do you have about the escalated price of land?

Discuss this Blog Entry 7

Dallas Mount (not verified)
on Mar 29, 2012

Owning land and operating a livestock buisness are two separate business decisions and they should be treated as such.

Forage or crops produced from that land are only one aspect of the "return" from a land business investment. I doubt there are many if any land purchases where the ag value alone would pay the interest and taxes on the value of the land. Many land purchases make sense when you bring other value producing factors into consideration.

E.M. (not verified)
on Mar 29, 2012

Right now I do not think buying a piece of farm ground is a wise investment. With the current prices - there is no way a piece of property could pay for itself - without outside income. And that is something HUGE you need to consider.

Not only do you have to consider the cost of the land, but what about the cost of operating that land? Where will that money come from? - Probably from a bank.

Before making a purchase sit down and pencil it out...it might be in your best interest to wait until the markets are not so volatile.

Bobbi (not verified)
on Mar 29, 2012

As a young farmer/rancher. We purchased our farm (we also lease/rent all the summer grass and some other farm/hay ground) about 3 yrs ago before land prices in our area really excellerated. Even with todays high commodity prices we are still seeing VERY tight margins, all inputs have increased to take the "extra" profit generated from high commodity prices. As a young person starting from scratch, the banks will only lend you so many dollars and with the increase in land prices you are forced to either buy less acres or lower quaility land. Less acres to spread the fixed cost out decreases the profit potential.

nkarpis (not verified)
on Mar 29, 2012

land has always been high priced in comparison to ag returns 50years ago iwas told you cant make it in ag those peop-le are still siting in the coffe shop and saying its impossible there will always be the dooers and the talkers start by leasing with asmall acreage of purchased land as time goes byincrease the percantge of owned land purchase land in lower priced area you will never succed siting onyoure posterior yes its possible all you need is the proper mind set good luck nick

Jim L (not verified)
on Mar 31, 2012

Hopefully changes in the marketplace will continue to put upwards pressure on beef prices. We need to be compensated for our investment in land and for our labor.

Shalom R. (not verified)
on Apr 3, 2012

It is practicaly impossible to run a small farm operation without an outside income. As a young couple we bought our farm eight yars ago. Both of us work full time, we are both registered nurses, and we are raising six children. Our parents helped us to buy our first brood cows and first ten breeding ewes. Eight years later we sell enough beef and lamb to pay our feed bills, fuel and land taxes. In my opinion its never too early to buy land. Land is a scarse comodity, Land does not reproduce like cows and sheep. Its always good to own the land you know what you work for and its yours. That is a piece of your America.

jamesbrixey (not verified)
on Feb 2, 2014

I am a young rancher I ranch with my dad an have no land of my own. I would love to buy some land but at the prices the are o cant get it to even come close to working out on paper. Hopefully some day I will be able to buy some land or I will have to give up the thong I love to do.

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A fifth-generation rancher from Mitchell, SD, Amanda grew up on a purebred Limousin cattle operation in which she and husband Tyler are active. She graduated with a degree in agriculture journalism...

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