The importance of Soil in Valuing Farm Land

By Julie Matthys

05 /27 /19

Most people know that the quality of soil can have a big impact on the price of farmland, but they may not understand all the complex variables that enter into the equation. We recently explored this topic with Julie Matthys of Halderman Real Estate and Farm Management to illuminate some of the more important components of how farmland is valued.

What are some of the basic elements of looking at farmland soil as it relates to value?

The first thing to look at is the surety map that notes the productivity, soil type and slope of a parcel of land. This information provides an overall picture of the potential for a farm. Over time, the productivity rating for a farm correlates well with the potential sales price/acre of that farm. Once the soil type is understood, we can assess whether a particular farm is maximizing its potential via crop management and other operational techniques.

Looking at the value of other farms can sometimes give you a rough idea of farms with similar characteristics. But with soil, there can be major differences even within the same neighborhood, including within a particular farm. For someone outside of the industry, the idea that there can be big differences in soil quality within a farm might be surprising.

The productivity index itself is derived from analyzing the different soil types present on the farm. To get an index value for productivity, we derive a weighted average value based on the relative percentages of the soil types. The low index value for a farm is in the 75-80 range, and the high is somewhere around 165.

The Halderman valuation advantage

Does Halderman look at farm valuation differently from other firms?

Well, our main advantage comes from our many years of farm valuation work and due diligence. At this point, our database is very robust, and our domestic and international clients look at it as a tool. We also use it internally to benchmark properties and inform our opinions of value.

We also consistently take a consultative approach in which we provide specific guidance for structuring farm leases. Since every property is unique, there are also lease provisions that can be unique for every situation. Often, focusing on farm tenants is essential for helping farms to become more productive.

How do farm management and best practices factor into the equation?

Farm management is quite important as it relates to value. In order to maximize productivity -- and by extension, a property's index value -- management practices like tilling, fertilizer plans and growing crops based on soil suitability are key. With our extensive knowledge of farm management tools, we can advise clients on how to create the most value from their farms as operators or investors.

At Halderman Real Estate and Farm Management, we welcome your inquiries relating to farm investment and best practices for farm management. Our core objectives include simplifying farm ownership for passive investors and helping owners and growers structure lease agreements that ensure success for all parties.