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Farmland Purchase Analysis

Farmland Purchase Analysis. Resources. ISU Ag. Decision Maker; Farmland Purchase analysis Farmland values Costs of production Price assumptions General update information USDA FSA ERS Other Iowa ag . Development Authority Other. Financial Data. Total acres Price per acre

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Farmland Purchase Analysis

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  1. Farmland Purchase Analysis

  2. Resources • ISU Ag. Decision Maker; • Farmland Purchase analysis • Farmland values • Costs of production • Price assumptions • General update information • USDA • FSA • ERS • Other • Iowa ag. Development Authority • Other

  3. Financial Data • Total acres • Price per acre • Percent down payment • This will vary depending on institution, credit condition, co-signer, security, etc. • Amount of the loan (balloon) • Interest rate • Current Fed. District average was 5.7 down from 6.13 a year ago

  4. Financial Data • Interest (cont) • Financial position • Terms • Remember beginning farmer loans; FSA, IADA, other; combining them • Years and number of payments per year • Current or desired rate of return on equity capital; how much do you want to earn; opportunity cost of your money • Interest on operating money • 5.85 last quarter; 6.23 last year

  5. Costs and returns data • USDA payments; not as big as they used to be but still important; CRP and other long term type payments • Annual income from other sources; animals, leases, building rents, etc. BE sure to include costs associated with the income

  6. Real Estate Taxes • Quite a variation; Iowa tax based on productivity but it’s a really confusing formula; • Same county; $22.85 ($.29 point) $26.94 ($.35pt) • April 8 auction, Mitchell county; 90 CSR $10,000 with $33.09 taxes ($.37 pt) • April 7 Iowa county, 62 CSR, $6,750, $20.47 or $.33 point • March 31, Cerro Gordo, 81.6 CSR, $9,000, $25.64 or $.31 pt

  7. Costs and returns data • Other annual ownership costs; fencing, tile, so forth • Closing costs • Expected increase in value over time (%) • Percent rate of cash return on farmland; capitalization rate • Initial investment needed for improvements • Initial investment needed for extra machinery if needed

  8. Costs and returns data • Will land be rented, if so, how and how much • Custom farmed; what is your share • If you are farming it yourself- • Anticipated crop rotation • Number of acres of each crop; remember if you are having 100% corn, then 100% beans, etc. to account for all the acres over time. This is trickier the more crops you have and the longer the rotation

  9. Costs and returns data • Expected yield and variance; impact of alternative yield assumptions must be included • Expected price and variance; same as with yield as far as evaluating a range of prices • Other income; corn stover, grazing, etc. (remember costs) • Nonland costs of crop production; seed, chemicals, fertilizer, machinery, etc. All the costs to put in the crop, except the land cost; be sure to include interest on borrowed operating funds

  10. Purchase Analysis • Be realistic in your evaluation • Remember that land ownership takes time; land tenure ladder • Carefully evaluate alternative possibilities • Get as much information as you can • Make your decisions based on your circumstances, not someone else's

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