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December 30, 2021

Common Farmland Investing Terms

Corn growing on a farm

Investing in farmland has numerous advantages. Investing in farming used to be a challenging task, but more investors are taking advantage of this option because it has become more accessible thanks to crowdfunding and fractional ownership alternatives.

At Land Income, we are committed to providing our members with the best farmland investment options while educating them and making the process of researching and selecting prospects a little easier. So, we've compiled a list of key phrases that we believe are vital to understand when considering investing in farmland.

Related: Row Crops vs. Permanent Crops

#1: Commodity Market vs. Specialty Market

Many investment farms are commercial farming operations that raise cash crops for sale on commodity exchanges. Soybeans, corn, wheat, cotton, and livestock such as cattle and hogs are examples of commodity or cash crops. These crops are helpful in a variety of sectors.

Soybeans, for example, can be processed for oil, used as animal feed, processed into food, and utilized as a filler in the plastics, rubber, and paper industries. Biofuel crops are cultivated alongside commercial crops. Biofuel is an energy source produced from renewable plant and animal sources. Biofuels include ethanol, which is frequently manufactured from corn in the United States, and sugarcane in Brazil.

Specialty markets, on the other hand, hold more niche and expensive products than a commodity market. 

#2: Soil Class

Based on various factors, the ground can be named and classified into one of six separate soil classes. Farmers decide which crops to grow based on the soil class of a given region.

  • When wet, clay soil is lumpy and sticky, and when dry, it is rock hard. Clay soil drains poorly and has few air gaps.

  • Sandy soil has a rough texture. It drains well, dries quickly, and is simple to grow.

  • Silty soil has a soft, soapy texture, retains moisture, and is usually nutrient-dense. The soil is simple to cultivate and compact with minimal effort.

  • Due to its increased quantities of peat, peaty soil appears darker and feels moist and spongy. It's an acidic soil, which delays decomposition and results in fewer nutrients in the soil.

  • In comparison to other soils, chalky soil has larger grains and is often stonier. It's free-draining and usually sits on top of chalk or limestone.

  • Loamy soil is a fine-textured, slightly wet soil with a reasonably uniform combination of sand, silt, and clay. It contains qualities that make it suitable for gardening, lawns, and plants. Loamy soil has a good structure, good drainage, retains moisture, is rich in nutrients, and is easy to grow.

#3: Irrigation vs. Irrigation District

An irrigation district is a clearly defined geographic area that is controlled by a self-governing agency with the goal of developing large-scale systems. Irrigation districts are tasked and regulated by the state legislature with distributing water among the district's farms.

Summer irrigation, on the other hand, refers to the addition of systems, facilities, hardware, and related operations to existing irrigation networks during the summer's hottest and driest months. Due to the rapid depletion of accessible surface water sources, summer irrigation is a necessary aspect in ensuring crop production.

#4: Arable vs. Tillable

Before & after getting farmland ready to plant crops

Arable land can be made usable as farmland that can be cultivated in a way that will support growing crops.

While arable land has the potential to be converted to farmland, tillable land can already be plowed or otherwise cultivated to support future crop development.

#5: Sustainability 

Using environmentally-friendly agricultural practices, non-destructive materials, and methodologies to develop farmland while being viable and eco-friendly is what sustainability in farming involves. Farmers practice sustainability to improve the quality of their farmland and life.

Related: Farmland Valuation Guide

#6: Productive Life vs. Economic Life

The term "economic life" refers to the length of time that an asset or property remains productive and lucrative. The physical life of an asset is not always linked to or influenced by its economic life. The property has reached the end of its economic life if or when it is no longer lucrative.

Productive life is the time during which an item continues to be useful and productive is known as its productive life.

#7: Bloom

Bloom is the officially defined period for the start of the bloom in some areas of California, during which the use of herbicides and pesticides is severely restricted. These limits are in place to safeguard the local bee population while also allowing pollination of crop flowers to occur.

#8: Drought

A drought is a period of extremely low or insignificant precipitation that results in an insufficient amount of water to sustain and support typical vegetation and good crop growth. Drought can reduce both water quality and availability required for productive farms and ranches, resulting in negative economic consequences for the agricultural sector.

It's essential to understand what causes drought and how to adapt to it because it can reduce both the water quality and availability required for farms and ranches to stay productive. When handled incorrectly, drought can be extremely harmful to farmlands and the overall economy. Drought can also cause insect outbreaks, wildfires, and changes in carbon, nitrogen, and water cycle rates, all of which can have an influence on agricultural production, vital ecosystem services, and the livelihoods and health of farming people.

Interested in Investing in Farmland?

Rows of crops growing on a farm

While this isn't a complete list of concepts that agriculture investors should be aware of, it should give you some insights about what goes into selecting farmland for our investments.

Want to learn more about farmland investing? Get in touch with the farmland experts at Land Income, and see how farmland investments can add diversity to your portfolio!

Related: Investing in Farmland Without Worrying About  Day-To-Day Operations

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