Iowa has been a hub for farmland investors - setting farming records with farmland sale prices. Our analysis below will try to understand the costs and rate of return with land ownership in Sioux County, Iowa. Sioux county according to the USDA produced on average 69.6 bu/acre of soybeans in 2021 making it a leading county in Iowa.
Our financial model takes into account two key variables the price per acre and cash rent. Each scenario below has a different cash rent (low, average, and high) and a variance of price per acre (low, average, high). Our numbers are explained below.
Determining the Price Per Acre
The low cost price per acre is $11,411 which was derived from University of Iowa's recent survey (HERE) . The high cost of $30,000 came from a recently published article about a record land sale in Sioux County, Iowa (Here). The average is simply the average of the costs.
Determining price per acre is hard to do because it can fluctuate so rapidly. The current USDA's numbers are often far too low.
Determining Taxes
Taxes of 1.19% was derived from our Farmlandstats.com property taxes dashboard. (Here) Taxes is a rough estimate that may change depending on the county.
Determining Cash Rent
Cash Rent is also challenging to estimate as the price's vary county to county and often what agreement is made with the farmer. Our low cash rent was $331 in Sioux County as reported by the USDA in our dashboard (HERE). The cash rent of $331 was in 2013 for irrigated crop land, as the non-irrigated was an estimate of $303 dollars. In 2021 cash rent was reported of $255. This implies there was a decline in cash rent or different sample group by the USDA. It would be hard to believe that there was a significant drop in cash rent in the area, hence we will take the highest cash rent in the belief that todays numbers will be at or higher then $330. The high cash rent of $600 was used due to a new record amount recorded in Iowa (HERE). The average is simply an average between expected and the highest point.
The Results
There was really only one option that looked attractive to an investor; paying the cheapest for the land yet charging the most cash rent. In the last scenario the highlighted value represents the best outcome with a return of 5.2%. This is a cost per acre of $11,400 and a cash rent of $600. While this is a good return the model fails to analyze if this is a sustainable practice or if it hurts farmers nationwide.
What do you think of our model? Are Soybeans worth that much?
Sources
Cash Rent Articles Here