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There’s a reason the United States, and the Midwest in particular, is sometimes called a “breadbasket.” It is the largest contiguous landmass of productive farm ground in the world and where the majority of our grain is grown.
AcreTrader’s due diligence in this area of the country is tailored to its specific characteristics. This article outlines some of the basic agricultural features of Midwestern farmland and their impact on optimal farm sourcing and valuation.
Soil in the Midwest
Primary farming states in the Midwest include Michigan, Wisconsin, Ohio, Missouri, Illinois, Iowa, Indiana, Minnesota, North and South Dakota, Nebraska, and Kansas.
These states, especially Illinois and Iowa, boast some of the most fertile soils you’ll find in the country, arguably even in the world. Millions of years of glaciers, swamps, and decay have left behind a deep base of topsoil rich in nutrients and organic matter. It’s this organic matter that makes Midwestern farms so valuable, and why farmers there tend to see very high yields.
Soil Productivity Indexes
As the foremost indicator of quality farmland, soil productivity is the first place to look when evaluating midwestern farms.
Soil quality is measured on a productivity index of some kind. Because soils are regionally unique and agriculture is such a primary industry there, productivity ratings are often state-specific in the Midwest.
Each index is calculated a little differently, but they all rate the productive capabilities of soils based on average management. They take many factors, such as organic matter, drainage, and climate, into account to determine the yield potential of a parcel.
The most common soil rating systems are:
Productivity Index, or PI: Used in Illinois, PI ranges from 47 to 147, with higher values representing higher expected yields. PI numbers are further broken into soil classes A through C. Ground with a PI over 100 is considered farmable agricultural land (AcreTrader tends to seek farms with a score of at least 120). PI was developed by the University of Illinois.
Productivity Index, or PI: North and South Dakota as well as Minnesota also use a metric called PI, but it uses slightly different measurements and was established by the Natural Resources Conservation Service (NRCS) based on data collected via the North Dakota State University Extension plots. This scale rates soils from 1-100, with 100 representing the highest-yielding soil in a given area and other soils designated relative to that standard.
Corn Suitability Rating 2, or CSR2: Developed by Iowa State University, CSR underwent an update in 2012, hence the “2.” This index is used in Iowa and ranges from 5 to 100, with 100 being the highest. Land values in Iowa are sometimes expressed as a price per CSR2 point.
Crop Productivity Index, or CPI: This metric measures Minnesota soil’s appropriateness for growing crops on a 1 to 100 scale, with 100 being the best. CPI was established by the state’s NRCS office.
National Commodity Crop Productivity Index, or NCCPI: Established by the NRCS, this 1-100 metric is used in all other states to determine the quality of soils used to grow commodity crops. It isn’t as reliable as the more specific measures, but it does provide a nationwide standard as a basis for comparison. It is important to note that many soil ratings, including NCCPI, can not and do not account for any improvements to the land such as irrigation and drainage.
It's important to note that soil indexes are not created equal and shouldn't be compared across state lines. A score of 90 by one measure may indicate a lower quality soil than a 90 by another.
AcreTrader uses each of these indexes where appropriate, alongside our own internal soil evaluation methods. An individual farm’s rating can be compared with county and state averages to determine whether it is performing above or below expectations for the area.
Crops in the Midwest
It’s not called the Corn Belt for nothing. Corn yields in this region are usually the highest in the nation, and productive farms in some states will typically exceed 200 bushels per acre. Soybeans also flourish in the Midwest’s rich soils.
Water in the Midwest
Irrigation is typically not used on midwestern farmland. Continental weather patterns cause rain to fall at adequate intervals throughout the growing season. And since soils fall on the lighter side, they tend to drain fairly well while retaining enough moisture for crops.
Flood Risk on Midwestern Farmland
The bigger concern is much more likely to be too much water. You’ll often observe riverlines cutting through and around parcels. If those waterways are too large, there’s a higher risk of flooding. The USDA designates some of these areas as wetlands, which are not eligible to farm on. Sometimes, excess water issues will disqualify a farm for us, or a parcel may require drainage tile to get water off the land.
To find out about a property’s flood history, FEMA offers a comprehensive search tool in its Flood Map Service Center.
What Is Drainage Tile?
The word “tile” is actually a little misleading, as these days, drainage tile refers to networks of piping installed below the soil surface. Generally made of plastic, it empties excess water to a surface water point (like a creek) at a lower elevation than the field itself. Drainage relies on gravity, so the farm needs sufficient grade, or else a pump may be necessary.
In order to maintain optimum moisture levels, tile must be installed at the correct depth and spacing for each particular field. In the past, AcreTrader has worked with farmers to raise capital for drainage tile installation.
Drainage tile installation on an Iowa farm.
Farmland Valuation in the Midwest
Tillable Versus Total Acreage
Once the soil quality and water suitability of a piece of land have been established, it’s time to take price into consideration. One key metric here is price per tillable acre, which is simply the amount you’re paying for each acre of a farm that can be used for crop production. If you’re buying a farm with lots of acres you can’t cultivate, you begin lowering the income the farm produces; thus, your capitalization rate starts shrinking fast.
Most farm leases are on a per-tillable-acre basis. In order to maximize our investors’ returns while charging our farmers a fair market rate, AcreTrader seeks out farms with a very high percentage of tillable acreage, close to or greater than 90%.
Corn crops on some of our active farm offerings (currently owned by AcreTrader investors) in the Midwest: (clockwise from top) Wabash River Farm in Indiana, Cedar River Farm in Iowa, and Blackstone Farm in Illinois.
It’s only on the basis of highly regional expertise that we’re able to do what we do here at AcreTrader. By being deeply aware of farmers’ specific needs and challenges, we can source quality deals for our investors.
Just as importantly, it allows us to act as a trustworthy partner to farmers. Another key reason we’re able to secure outstanding farms even in the relatively competitive land markets of the Midwest is our willingness to work with individual farmers to accomplish their goals.
Whether it’s helping a farmer raise capital through a sale-leaseback or expand by increasing acreage, we earn trust on the basis of our expertise. And that starts with honest, on-the-ground farming knowledge.
Note: This article is meant to be a topical overview and, as such, does not include specific financial advice. Every situation is unique, and you should consult with a licensed attorney, accountant, and/or financial advisor prior to entering any written contract or verbal agreement.