Agriculture Investment – How to Value Farmland for Investors

There are many factors to consider when approaching the valuation of an asset; the relationship between supply and tangible agriculture land for sale near bangalore, the availability and affordability of credit to enable this demand, the earnings generated by the asset and the cost of generating that income. However, as with any asset, Investors should primarily consider the price to earnings ratio of farmland to identify the cost of each unit of income.

The value of commercially viable agricultural land is driven primarily by the profitability of the land as a commercial, income generating asset. The greater the income yield generated from the sale of crops, the higher the value of the land from which that yield is derived. This factor is the absolute key for both farming landowners and investor landowners. Tenant farmers will be prepare to pay higher rents on land where a greater income can be earn and investors will be prepare to pay a higher price for land where the income generated is higher.

The profitability of farmland can be measure simply by deducting the combine cost of ownership (mortgage interest), and of production (manpower, fuel, fertilizers seed etc.), from the revenue generate by way of the sale of the crops produce. It should therefore be not that agricultural commodity prices play a crucial role in ascertaining land values. It is the influence of agricultural commodities that have to a large extent generated. The recent gains in farmland prices in the UK. Particularly during 2007 and 2008 when commodities were experiencing unprecedented highs. There are of course a number of other factors at play but a pure investor should look mainly at earnings. And costs for a picture of the real value, regardless of asking prices. Using this methodology also quickly identifies over-pricing where the cost of ownership and production are close to, or outweigh income.

Supply also affects farmland values, and in areas where there is a high level of availability prices. Are likely to be lower than in areas where availability of good land is suppresse. Either through a lack of sellers or an actual lack of existing land. In any agricultural economy the highest yielding land is take into production first as it is the most profitable. Where profitability of the land in two different areas is similar. The availability of farmland explains much of the variation in prices.

A good example of this can be witnesse in Canada where despite. A large availability of land (6.5 million km2) only a small proportion is able to produce premium agricultural yields. Demand for this more profitable land will be highest and it will be the most valuable. Whilst less productive land will be less valuable. This makes agriculture land for sale near bangalore investment in Canada tricky for those unfamiliar. The farmland market although there are a number of good farmland investment funds with locally experience operators.

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