Uncertainty in global markets along with low interest rates and a strong agricultural sector has caused many investors to eye farmland as an investment opportunity. Farmland can be an excellent asset within an investment portfolio. Many investors decide to work with a real estate professional specialized in farmland to ensure a sound investment while others will find property to purchase through their own sources.
The following are main items to identify when investing in farmland throughout the Delta Region to ensure a sound investment.
- Drainage - Most areas of the Mississippi Delta Region in cultivation were naturally lowlands, river bottoms, or swamps. Drainage is very important for maximum production. Identify any drainage issues and include any maintenance or improvement costs into your investment decision.
- Irrigation - The University of Arkansas recommends having at least 15-20 gallons of water per acre per minute for land under cultivation. Without adequate irrigation crops will be water stressed during the summer heat and not produce the yield compared to a farm with adequate irrigation. Another irrigation dilemma in the Delta Region comes from the aquifer. Certain areas of the Delta have less quantity of water available and more costly irrigation. Another irrigation area to identify is the well information. The age, size, pump stages, pumping capacity, and brands of gearheads and pumps should be identified. Wells, pumps, and gearheads are like vehicles, they range in size, price, and quality.
- Production - Rate of return on a farmland investment is tied to production. Generally, higher producing farms have a higher rent which leads to a higher investment value. Identifying current yield history will assist in making a sound investment.
- Soils - Identifying soils and soil class will help in making a sound investment. Some soils can produce many crops while others are limited. Other soils are naturally high in fertility while others are very poor.
- Fertility - A soils test can identify issues with fertility from primary nutrients to micronutrients. If soil fertility is low the farm will not be producing at maximum production. Taking into account nutrient amendment recommendations to increase fertility should be included into an investment decision.
- Location - Identifying farm location relative to grain markets and the accessibility of the farm is also important. Investors should identify the number of producers in a general area. Some areas can have limited accessibility due to a river, bayou, or city and therefore limit the number of producers and access to grain markets.
Other areas to identify and factor into a farmland investment are the quality of improvements, capability to improve the farm, costs of any neglected maintenance, and the costs of any future improvements. A real estate professional specialized in farmland can help identify the listed issues to ensure a sound investment. Farmland can be an excellent investment compared to stocks and bonds. Like all investments, farmland has risk and not all land is equal. Identify all relative information and a sound investment can be made into farmland.
By Jeffrey Hignight, Farm Manager and Associate Broker at Glaub Farm Management. Serving Landowners in Arkansas, Mississippi, Missouri, and Tennessee.