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Farmland Purchase Analysis Ag Decision Maker -- Iowa State University Extension Compare the economic and financial impacts of purchasing a parcel of farmland. Information File C2-70, Iowa Farmland Values Survey, has information on current land values. Place the cursor over cells with red triangles to read comments. Enter your input values in shaded cells. General information Name of buyer Example Buyer Name or description of property Example Property Economic costs and returns input data Financing information input data Expected USDA fixed payments per year (Direct, CRP, CSP, etc.) $3,000 Total acres in purchase 160 Annual income expected from other sources (livestock, royalties, etc) $0 Expected purchase price per acre $6,000 Real estate taxes per year $2,400 Percent down payment (100% less % borrowed) 35% Total other annual ownership costs (upkeep of fences, tile lines, etc.) $1,000 Percent of loan amortized (100% less balloon payment %) 100% Initial investment needed in improvements (fences, tile lines, etc.) $3,200 Expected annual interest rate on purchase loan 7.00% Initial investment needed in additional machinery, if any $0 Number of years over which the loan is amortized 25 Closing costs, total $ $1,500 Number of loan payments per year 1 Expected annual % increase in farmland values, net of general inflation 2.0% Current rate of return earned on equity capital 4.00% Typical % rate of cash return on farmland investment (capitalization rate) 5.0% Interest rate charged on operating capital 7.50% Crop rotation, yield and price assumptions Crop 1 Crop 2 Crop 3 Crop 4 Crop 5 Crop 6 Name of each crop to be grown Corn Soybeans Number of acres of each crop 75 75 Current expected yield for each crop (owner's share), per acre 165 50 Long-run expected selling price for each crop $4.00 $11.00 Other income (or cash rent) expected (owner's share), $ per acre Owner's estimated nonland crop production costs, $ per acre Corn Soybeans Seed $50 $40 Fertilizer and lime $150 $100 Herbicides $25 $20 Other pesticides Machinery fuel and repairs $42 $30 Machinery ownership costs $37 $27 Custom hire charges Miscellaneous costs (scouting, soil tests, etc.) $9 $7 Crop Insurance premiums $15 $9 Labor charge or family living withdrawal $30 $27 Grain drying $40 Transportation and handling $16 $5 Interest on variable costs $14 $10 $0 $0 $0 $0 Total nonland costs $428 $275 $0 $0 $0 $0 Economic Analysis Total $ Rate-% $ per acre Income from crop sales $90,750 $567.19 Other crop income 0 0.00 Income from USDA fixed payments 3,000 18.75 Income from other sources 0 0.00 Total revenue expected $93,750 $585.94 Total nonland costs of crop production $52,699 $329.37 Real estate taxes and other ownership costs 3,400 21.25 Annual cost of added investment in improvements and machinery 278 1.74 Total costs expected $56,377 $352.35 Net cash return to land investment $37,373 $234 Estimated land value based on typical rate of return (capitalization rate) $747,468 5.00% $4,671.67 Estimated land value based on real cost of capital (discount rate) $965,085 3.87% $6,031.78 Expected cash return on investment based on expected purchase price 3.89% Expected annual increase in farm land values, net of general inflation 2.00% Expected return on investment including capital gains 5.89% Financial Analysis (cash flow) Total $ $ per acre Total revenue expected $93,750 $585.94 Total cash variable costs of crop production $47,899 $299.37 Real estate taxes and other ownership costs 3,400 21.25 Annual principal and interest payments 53,546 334.66 Total cash outflows expected $104,845 $655.28 Net cash flow expected -$11,095 -$69.34 Maximum loan that can be supported with expected net cash flow $494,709 $3,091.93 Maximum purchase price that can be supported with % equity constant $761,091 $4,756.82 Maximum purchase price that can be supported with $ of equity constant $830,709 $5,191.93 Version 1.2 Prepared by William Edwards, Extension Economist, and Michael Duffy, Extension Economist. Date Printed: 11/11/2011 . . . and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC 20250-9410 or call 202-720-5964. Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Stanley R. Johnson, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa. Farmland Purchase Analysis Ag Decision Maker -- Iowa State University Extension Compare the economic and financial impacts of purchasing a parcel of farmland. Information File C2-70, Iowa Farmland Values Survey, has information on current land values. Place the cursor over cells with red triangles to read comments. Enter your input values in shaded cells. General information Name of buyer Name or description of property Economic costs and returns input data Financing information input data Expected USDA fixed payments per year (Direct, CRP, CSP, etc.) Total acres in purchase Annual income expected from other sources (livestock, royalties, etc) Expected purchase price per acre Real estate taxes per year Percent down payment (100% less % borrowed) Total other annual ownership costs (upkeep of fences, tile lines, etc.) Percent of loan amortized (100% less balloon payment %) Initial investment needed in improvements (fences, tile lines, etc.) Expected annual interest rate on purchase loan Initial investment needed in additional machinery, if any Number of years over which the loan is amortized Closing costs, total $ Number of loan payments per year Expected annual % increase in farmland values, net of general inflation Current rate of return earned on equity capital Typical % rate of cash return on farmland investment (capitalization rate) Interest rate charged on operating capital Crop rotation, yield and price assumptions Crop 1 Crop 2 Crop 3 Crop 4 Crop 5 Crop 6 Name of each crop to be grown Number of acres of each crop Current expected yield for each crop (owner's share), per acre Long-run expected selling price for each crop Other income (or cash rent) expected (owner's share), $ per acre Owner's estimated nonland crop production costs, $ per acre Seed Fertilizer and lime Herbicides Other pesticides Machinery fuel and repairs Machinery ownership costs Custom hire charges Miscellaneous costs (scouting, soil tests, etc.) Crop Insurance premiums Labor charge or family living withdrawal Grain drying Transportation and handling Interest on variable costs Total nonland costs $0 $0 $0 $0 $0 $0 Economic Analysis Total $ Rate-% $ per acre Income from crop sales $0 $0.00 Other crop income 0 0.00 Income from USDA fixed payments 0 0.00 Income from other sources 0 0.00 Total revenue expected $0 $0.00 Total nonland costs of crop production $0 $0.00 Real estate taxes and other ownership costs 0 0.00 Annual cost of added investment in improvements and machinery 0 0.00 Total costs expected $0 $0.00 Net cash return to land investment $0 $0 Estimated land value based on typical rate of return (capitalization rate) $0 0.00% $0.00 Estimated land value based on real cost of capital (discount rate) $0 0.00% $0.00 Expected cash return on investment based on expected purchase price 0.00% Expected annual increase in farm land values, net of general inflation 0.00% Expected return on investment including capital gains 0.00% Financial Analysis (cash flow) Total $ $ per acre Total revenue expected $0 $0.00 Total cash variable costs of crop production $0 $0.00 Real estate taxes and other ownership costs 0 0.00 Annual principal and interest payments 0 0.00 Total cash outflows expected $0 $0.00 Net cash flow expected $0 $0.00 Maximum loan that can be supported with expected net cash flow $0 $0.00 Maximum purchase price that can be supported with % equity constant $0 $0.00 Maximum purchase price that can be supported with $ of equity constant $0 $0.00 Version 1.2 Prepared by William Edwards, Extension Economist, and Michael Duffy, Extension Economist. Date Printed: 11/11/2011 . . . and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Many materials can be made available in alternative formats for ADA clients. To file a complaint of discrimination, write USDA, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC 20250-9410 or call 202-720-5964. Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Stanley R. Johnson, director, Cooperative Extension Service, Iowa State University of Science and Technology, Ames, Iowa.
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