On several occasions when visiting with landowners, the most common question asked is why land sells for such a higher price in the Midwest compared to the Mississippi Delta region although yields on corn and soybeans can be similar.
One of my answers to landowners is that Midwest production is more profitable meaning their margins are greater, therefore a greater share can go towards land rent. Higher land rent leads to higher land prices. The table below precisely demonstrates why land prices are higher in the Midwest due to a higher return.
The table compares the University of Arkansas and the University of Illinois production budgets for 2012. Production costs are approximately 41% and 39% more in Arkansas than Illinois to produce corn and soybeans, respectively. The difference is even larger when comparing rice and cotton to Illinois corn. Production costs are approximately 78% and 61% greater for rice and cotton, respectively as compared to Illinois corn.
Arkansas cropland has higher input costs and generates a lower return compared to Illinois cropland. Greater margins allow Midwest producers to pay higher rent which leads to higher land values. The table clearly demonstrates one reason Midwest land prices are greater than those in the Mississippi Delta region.