Price to Earnings Comparison of Farmland - Midwest vs. PNW

Price to Earnings comparison of Farmland in Midwest vs Pacific North West

We have recently been engaged to help position a large, highly efficient (6,000 contiguous acres) corn farm in the PNW for sale.  As part of our due diligence, we took a close look at MW farmland values and arrived at the following conclusion/baseline for our project:

According to the 2018 ASFMRA Land Values & Lease Trends the 3 most productive Counties in Illinois averaged around 240 bushels of corn per acre with Productivity Indices in the upper range approaching 147.  Lease rates reportedly peaked at $350 per acre at market values of $11,000/acre.  The resulting investment ratios then are a cap rate of 3%,  a P:E ratio of 31.42 and $45.83 per bushel land value  Also important to consider are the corn prices received which typically have a negative basis, and weather related risks we are too familiar with.

On the Project farm,  we see average yields trending toward 275 bushels per acre on farmland trading in the $7,000/acre range and similar rents of $300 -$350/acre.  The resulting investment ratios on this farm then are a cap rate of 4.3%,  a P:E ratio of 23.33 and $25.45 per bushel land value.  Also important to consider are the corn prices received in the PNW,  a corn deficit area which typically has a positive basis and the absence of weather related risks.  Additional considerations and financial benefits include depreciation on the personal property involved in the irrigation distribution system.

Summarized Comparison Table

From a passive investors view: The PNW provides significant financial value and risk mitigation over what many consider to be the real risk free Alternative (Natural Resource) Asset Investment.

From an operators view: The PNW provides peace of mind,  a dry, high desert climate where the crop can be managed daily based on its needs, a strong market and down stream value add opportunities.