June 11, 2015

By Dan Emerson

Earlier this year, San Francisco-based Granular acquired farmland valuation tool called AcreValue. AcreValue gives online users valuation information on farmland in Iowa, Illinois and Indiana, using proprietary algorhythms that factor-in 50 different metrics, in a map-based interface.

Valuation estimates are based on projected, field-level productivity (using soil, climate, geography, crop history, and other factors), combined with current and regional market characteristics (using commodity prices, interest rates, and other variables that change over time as well as, over space).

Granular CEO Sid Gorham claims that “AcreValue will make the farmland resale and rental markets more convenient, transparent and efficient.”  But questions remain about the implications of this kind of tool.

How will AcreValue, and other, similar efforts, have an impact on the U.S. farmland market?

Making such specific data more accessible might help increase the value of “higher quality” parcels, says Michael Langemeier, a clinical engagement professor and ag economist with Purdue University’s Center for Commercial Agriculture. “A buyer who does not have that information will tend not to bid as high, for higher-quality land.”

For lower-quality land, access to data would have the opposite effect: lower bids, Langemeier says. If a given parcel deviates from other, nearby properties, “it becomes pretty important to have that kind of information.”

Increasing market transparency will lead to both winners and losers, in the short term. But, over time, helping land markets function more efficiently will benefit both buyers and sellers, Langemeier contends. “Anything that can reduce asymmetrical information is helpful.”

Will more transparency and efficiency help increase the number of “long-distance” landowners, including foreign land-buyers?

Langemeier doesn’t expect to see that, because farming has remained,  to a large degree, still a family business. “Many of the farms I see expanding are family-owned farms; one way to do that is acquiring (adjacent) land.”

He also notes that many, long-distance ownership situations involve farming families. For example, “someone who farms in Indiana might have a great-uncle who owns farmland in California; they might acquire that land. That’s really become common.”

Will farmland prices be impacted?

Farmland prices will not be significantly impacted by AcreValue and similar data portals, says land marketing consultant Murray Wise. One reason is the relatively small amount of farmland that changes hands annually in “arms-length” transactions – only three-tenths to seven-tenths of one percent in the Midwest, according to Wise, who is chairman and CEO of Champaign, Ill.-based Murray Wise Associates, LLC, a land marketing consulting firm.

But he also notes that farmland values within the same township in a region can vary by as much as 50 percent. “From that point of view, if it (AcreValue) works, it would be a useful tool.”

To help ensure accurate market data, Gorham says Granular understands the importance of separating related-party transactions (which make up a relatively high percentage of farmland sales) from “true market price” transactions. Banks can provide this information, he says. “We look at this issue very carefully.”

Gorham adds that the accuracy and utility of AcreValue will increase, as Granular adds more data, and more states.