Escalating Land Prices
Options for Your Farm
With the cost of land ownership and rising rental expenses, we need to look for ways to get more from our existing land base. How can we produce more yield with our existing land base? Increasing plant populations is a logical first step. Squeezing more plants and hopefully more yield from every acre is certainly a reasonable option, but that increases our cost per acre for seed, fertilizer and crop protectants. With this approach, it will clearly take more water as well. While we cannot control the sunshine, water is a controllable input. Making sure those additional plants get all they need to prosper and produce is a key factor. Ramping up your seed population and the associated need for nutrition adds risk. With rainfall an uncontrollable input, supplemental irrigation becomes a viable alternative.
A successful irrigation program takes attention to detail and requires additional management, but it can minimize risk and remove dependence on mother nature providing adequate moisture. In many cases the potential exists to increase production by nearly 50% by controlling available plant moisture. Adding an irrigation system and managing it properly can add value to your land that will likely return more than the cost of purchasing more land. Properly maintained center pivot systems can last in Michigan for 40 years or more. Durable, well planned irrigation projects have shown to add value to those acres of land equal to the cost of the equipment, installation, and infrastructure. This value can be measured in three different ways. It adds to the resale value, improves cash flow, and can benefit your estate plan for future generations. You can improve your balance sheet building equity, improve your income and pass along a depreciable asset (lowering your tax liability) to your children with decades of useful life remaining.
Example:
100 Acres of land you purchased for $4,000 / Acre
Develop those acres with irrigation for $3,500 / Acre
Those 100 acres are now very likely worth $7,500 / Acre with a value that will likely continue to rise.
Assume the cost to acquire additional acres is $8,000 / Acre.
The market value of those owned, irrigated acres today is likely $11,500 / Acre.
If you can achieve a 40% increase in yield on land that cost $7,500 / Acre (purchase price+ irrigation investment) as opposed to the old yield that cost you $8,000 per acre (new land purchase cost), doesn’t that make sense?
For more information on Michigan Land values, click the link below:
https://www.canr.msu.edu/telfarm/land-value-reports/
While this is a purely hypothetical scenario, doesn’t it appear to be worth some time to run the numbers on your farm? As a land owner with irrigated acres to rent, you can attract a broader group of tenants, many of whom are willing to pay a higher rent.
Indicators are in place that will likely limit future access to water for irrigation and many other purposes. Do you want to be the one down the road that does not have access to water to irrigate. I suggest your first step to be to research access to water for your farm. Michigan Valley Irrigation can help with this initial first step. Give us a call at 989-762-5028, we’d be happy to look into this at no cost to you!
ABOUT THE AUTHOR
Pete is the marketing manager for Michigan Valley Irrigation, having joined the company in 2016. He was raised on a dairy farm in western New York and graduated from Cornell University with a B.S. in agricultural economics. His entire working career of over 37 years has been involved in agriculture. A farmer helping farmers. When away from Michigan Valley he operates, Joyful Noise Farm, a small livestock and produce farm and spends time with his family.
