How to Maximize Profit on Your Farmland

Apr 1, 2023

Farmland values have accelerated in growth in 2022, climbing as much as 25-30% above 2021 sales prices. 

As the incentive to expand farm operations remains strong, the question you should be asking is: how can you maximize profit on your farmland? 

This article will walk through the best to maximize your return on investment by diversifying and doubling down on the most profitable uses of farmland. 

Why farmland is a smart investment

You don’t have to be a family farmer to understand the value of farmland as an asset. Here are some reasons why it’s a good investment. 

High demand 

As the global population continues to grow, so will the demand for food, fuel, and fiber. This, coupled with increasing interest in sustainable agriculture and renewable energy, is driving up the demand for farmland. 

USDA predicts that this trend will continue, with the demand for farmland projected to increase by 5.9% from 2021 to 2028.

This growth in demand means that landowners will almost certainly see their land appreciate in value over time, providing a significant opportunity for long-term investment and financial growth.

High profitability

Investing in farmland has a high chance of profitability. USDA reported an average land appreciation rate from 2020 to 2021 of 12.4%, which translates to a net profit of $400 per acre. 

This rate of appreciation is higher than that of the stock market, making farmland a lucrative investment option for those looking for long-term gains.

Liquid revenue without selling

Running a productive farm operation—whether you operate it yourself or lease to a farmer—offers a flexible way to generate income while retaining ownership. It allows landowners to profit off their land without sacrificing their property's long-term value. 

Unlike the appreciation gains that require selling or borrowing, a profitable farm operation provides a consistent and reliable source of income. If you want to lease your land to a farmer, you can negotiate an agreement that fits your specific needs, including rent payments, duration, and permitted uses.

Diverse revenue streams

Farmland has a wide range of use cases. To increase the value of your farmland, it's important to focus on improving factors such as soil fertility, drainage, and irrigation.

Research the market demand for specific crops or livestock in your area so you can make informed decisions about what to grow or raise. 

Likewise, you should evaluate the potential for additional income streams such as hunting leases, conservation programs, or renewable energy projects. These can open the door to additional revenue while also growing your farmland value. 

5 revenue streams to maximize farmland profitability

Although traditional agricultural methods may bring success to some landowners, there are several high-capital approaches that can help maximize profits from the land. These methods include options like growing seasonal crops, double cropping, or leasing the land for various uses.

Let’s explore some highly profitable options and more to maximize the potential of your land.

1. Seasonal crops

As a tried and tested method of generating significant profits for landowners, growing seasonal crops can be a lucrative business. In 2022, for example, Illinois corn farmers saw a $477 return on investment.

Additionally, modern farming technologies and practices can be used to optimize crop yields, minimize costs, and increase efficiency. These include precision agriculture, data analytics, and sustainable farming practices. 

2. Double cropping

Double cropping is a widely used method to boost crop yields and profits. The approach maximizes soil nutrients and sunlight to yield two harvests each year, while reducing the financial risk of a single crop failure. 

One popular double crop option is winter wheat, which can be planted after the harvest of a summer crop. Winter wheat is a hardy crop that can withstand the cold winter months and resume growth in the spring. This allows farmers to maximize their land use and increase their profits with minimal additional costs. 

3. Energy farming

If you have a suitably sized and well-located space for large scale wind turbine installation, you may be able to lease your land to wind developers or utility companies. These companies generally cover 100% of the installation costs, then pay you a sum based on the number of wind turbines in operation and total energy output. 

This can be a highly lucrative venture, provided your land meets the following requirements:

  • Annual average winds speed of at least 13 mph

  • Access to work vehicles

  • Not too close to any other homes

  • Connection to the electric grid

Additionally, because the amount of land taken by the turbine is relatively little, this leaves a significant portion of the land that can be used for your seasonal operations. 

4. Agritourism

Agritourism is a popular way for landowners to generate income by attracting visitors to experience and learn about farm life. From flower farming to animal petting, there are many activities that can bring in extra income.

Agritourism works to diversify income streams and reduce the risks associated with a single farming operation. It’s important to consider the size of your property, local tourism trends, and seasonal factors when developing your agritourism activities. 

5. Farmland improvements

As we mentioned earlier, farmland appreciates in value over time, now more than ever. While markets will likely be good to your land value, there are some areas where you can take it a step further: 

  • Soil quality. The quality of your soil is a major factor in your farmer’s ability to realize the value of your farmland. Different crops thrive in different soils, and the higher the quality of the soil the more likely your farmer will be to achieve a high yield. 

  • Field quality. In addition to the soil quality, there are other factors intrinsic to the field that impact its ability to yield value. Generally, farmers prefer rectangular shapes over irregular for easier row planting, flat land over hilly, as well as a generally consistent soil profile across the field. 

  • Water quality & irrigation. The quality of water on the land is another factor that dramatically impacts your yield. Issues affecting water quality can include water rights issues, pump capacity, potential future drought, salinity issues, and more. 

  • On-farm structures. Houses, grain storage, and barns all play a significant factor in the farmability on the land. 

Final thoughts: Maximize profitability with a land lease agreement

If you own a piece of land and are looking to make the most of your land then maximizing its profitability through diversifying your income streams is a must.

But not every landowner is able or willing to run a full-scale farming operation. If this is you, then you don’t have to worry too much. There’s a better option available.

Farmland leases enable you to find a knowledgeable and experienced farmer to grow, maintain, and harvest crops. Based on the type of rental agreement, you can either receive a flat rate for the use of your land, or enter into a crop sharing agreement with your farmer. 

If you want to know an estimated value of your farmland, receive a free CashRentstimate here.