Good Land is Cheap and Bad Land is Expensive
This column is a sequel to the one that appeared in the September 2011 of Farming, entitled "Silk Purse or Sow's Ear?" That one dealt with renovating long-unused fields and pastures, and the need to do some homework before undertaking what's often a time-consuming and expensive process.
Part of the impetus for this month's topic was reading that some bank-managed land in Illinois just rented for $700 per acre for the 2012 crop year. Seven hundred dollars per acre? A few years ago that wasn't an uncommon selling price for decent cropland in upstate New York! It's not just rental prices that are going through the roof; good cropland in Illinois is selling for over $10,000 per acre. Most of this is land with little development potential: It will grow corn and soybeans, not ranch houses and condominiums.
How could anyone afford that much for cropland rental? Well, what if corn is $6 per bushel next year? If that land yields 200 bushels per acre (much of it will, and more) that's $1,200 per acre, leaving $500 after paying $700 for land rent. Even with high fertilizer prices, the non-land input costs to grow an acre of corn should be under $500, leaving a decent profit for the farmer. I would expect that 200-bushel corn land will cash flow at a $700-per-acre rental rate as long as corn stays above $5 per bushel.
One step ahead
I have a friend (I'll call him "Butch") who's always been aggressive in buying farmland, much to the consternation of his more conservative farming neighbors, aka "the boys in the coffee shop." About 40 years ago, Butch paid $400 per acre for some excellent cropland next to his farm, but the neighbors said that was way too much, no farmland in that area was worth $400 per acre. That didn't bother Butch, who planted corn and alfalfa on the land and got fine crops. A few years later, another large block of nearby cropland came up for sale that he bought for about $600 per acre. Coffee shop consensus: Butch would go broke paying that much for land, that $400 per acre was more like a fair price. This went on for many years, Butch continuing to pay more than the boys in the coffee shop thought he should, even though a few years later the price he'd paid now seemed pretty reasonable. He was one step ahead of his neighbors right from the start. Now Butch and his family own a whole lot of land, most of it contiguous to their farming operation, including a couple of farms that were formerly owned by, you guessed it, the boys in the coffee shop!
My friend didn't have a secret; he simply made sure that the land he purchased, even though it was well above the "going price" for farmland, was of good quality. Long ago that meant land that was well-drained and fertile, but today what's more important is land that is responsive to modern technology. In Butch's case, that involved installing subsurface drainage where needed plus aggressive fertilization, much of it via manure application, to increase soil fertility.
More from Cato
In the previously mentioned article, I quoted Marcus Porcius Cato, a Roman statesman who 160 years before the beginning of the Christian era wrote a farm management treatise, "On Farming." He wrote about the characteristics of a good farm, many of which are still valid today. It's his only surviving work, and also the oldest complete prose written in Latin. Besides describing what makes a good farm, Cato cautioned against buying a farm that cost a lot to operate: "Know that with a farm as with a man, however productive it may be, if it has the spending habit, not much will be left over."
Farmland with the "spending habit" is land that's not responsive to good management. We can improve some poorly drained soils by subsurface drainage. In some cases we can do so even if there's no natural outlet for the drainage water by installing an electric pump to elevate the drainage water into a ditch that does have an outlet. It's not expensive to do this as long as there's a ready source of electricity, and the amount of power a typical pumping station uses each year is so small the farmer probably wouldn't even notice it on his electric bill.
We can also improve soil fertility by the use of commercial fertilizers, or on livestock farms by the judicious application of manure. As long as the soil isn't extremely acid we can economically increase soil pH by the use of agricultural lime. However, in order for these practices to be economical, we need to start with a soil type that has good yield potential. That's why soil maps are so important when considering the purchase of cropland. We can correct low pH, improve soil drainage, raise soil fertility, and we can also deal with land that's very stony, but can we do several of these things economically? Land that's acid, wet, infertile and stony would certainly have the "spending habit." Not only would this land be expensive to farm from an input cost, but even after pouring all the money into the land crop yields may still be low.
We made this mistake at Miner Institute when we decided to tile drain a 7-acre field that had been allowed to lie fallow for over 50 years. It was very wet, so much so that we couldn't tile drain it until early winter when a few inches of frost provided the flotation needed by the tiling equipment. As soon as tile installation was complete the outlet started to run and continued to most all winter and into the next season - we'd probably intercepted a spring. We planted corn, our normal practice after breaking out new cropland, and were disappointed with the yield. After two years of corn we planted alfalfa-grass, also with poor results, and to this day the field continues to provide disappointing yields. The soil type was simply not one that was responsive to what we considered good management. Remember this when considering the purchase of cropland: Is it producing good crop yields? If not, is it because of poor management or is it land with "the spending habit?" If the former, then good management can make it both productive and economical - you can have the first without the second, but you don't want to!
Ev Thomas has worked as an agronomist in New York for 45 years, first with Cornell University Cooperative Extension, then with the William H. Miner Agricultural Research Institute in Chazy, N.Y., including managing its 680-acre crop operation. He continues to work parttime for Miner Institute and is now an agronomist at Oak Point Agronomics. He has a written our Forage column for over 13 years and has been an expert contributor on a number of other topics.