Monday, February 17, 2014

How much is American farmland worth?

Why should American farm land trade at a premium to farm land in Russia, South Africa or Argentina?

Well there are a number of factors today (although these may be shrinking). 1) What is the cost of labor to work the farm land? 2) What are the property taxes? 3) What is the level of economic stability in the area? You did’t want to invest in Cuban farm land right before Castro took control. 4) How close are the markets to your crops? If you are growing walnuts and the walnut market is on the other side of the planet then you will make less than if you are near your market. 5) What are the chances that the government will simply confiscate your property (think Venezuela’s confiscation of the property of Concoco-Phillips). 6) Do I have access to modern farm machinery to harvest my crop or do I have to rely entirely on human labor? 7) How dependable and economic is my water supply? 8) Can I use the best fertilizers for my crop?  8) What are the alternative values for the land? When farm land was being converted into subdivisions in the US, it lowered the supply and the minimum price for the land. 9) What are the state and federal income taxes on farm income? The lower these are the more valuable the land. 10) Is there an established support infrastructure for the crop you are growing? For example, if you are the only walnut orchard in the area then you have less opportunity for sharing hullers and sorters and this will likely drive your costs up. 11) How prosperous are the farmers in your region? Farmers are the usual buyers of available farmland and if they have been making and saving money then they can pay a higher price than if they are struggling to make money on their existing land.

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