The hidden value of excess soil fertility [Iowa farmland secret]

Owning farmland in Iowa is a substantial investment. 

Yet many landowners overlook one resource that can significantly enhance their returns…

Soil fertility. 

This “hidden” resource can lead to higher yields, better crop quality and, ultimately, a more profitable land asset.

But ignore it?

You risk underestimating the true worth of your farmland and losing out on significant financial benefits.

Benefits that include maximizing your land’s productivity and its long-term value.

It’s easy to miss this potential when you aren’t involved in day-to-day farming and rely on your tenant to manage such aspects.

But understanding (and knowing how to leverage) soil nutrients can enhance your farmland investment strategy.

A quick caveat: While this article attempts to simplify and monetize the value of residual fertility in the soil, it’s important to acknowledge that soils are highly complex in terms of structure, climate and biology. As often said, a handful of soil contains more living organisms than people on the planet.

What is excess soil fertility?

Excess soil fertility refers to the additional nutrients stored in the soil beyond the immediate needs of the crops. This “storage” isn’t universal to all soils in all climates but is applicable to our high clay soils in the upper Midwest.

My team and I like to use a bathtub analogy to simplify this concept. You can think of the components like this:

Faucet = How applied fertility, like manure or synthetic fertilizers, flows into the soil. Here in north central Iowa, we focus on adding phosphorus (P) and potassium (K) nutrients.

Tub = The soil in our region retaining these excess nutrients.

Drain = How the nutrients leave the soil as the crops grow (for us, that’s corn and soybeans).

Even with the “drain” open, keeping a steady flow from the “faucet” will gradually fill the “tub” with fertility. This process ensures the crop receives the nutrients it needs for optimal growth.

Over time, this fertility surplus builds up and, therefore, becomes a “hidden value” in the soil.

Why is excess soil fertility so valuable?

There are several reasons why excess soil nutrients should matter to landowners:

Impact on yield

Third-party studies and our own internal datasets show that we achieve higher yields when the bathtub is near full than when it’s near empty, despite the fact that the crop only removes a small fraction of the tub’s capacity. 

This is important because yield drives the gross annual return on the land asset, which drives the asset’s valuation.

IRS depreciation and market value

The IRS requires that we calculate additional soil fertility for depreciation purposes. This calculation involves determining nutrient levels, assigning a market value and establishing a depletion period.

Excess fertility can often represent up to 10% of a farm's market value. 

However, I believe that much of the market undervalues this figure and often assigns a “0%” to it. Doing so can lead to an inaccurate valuation of your farmland.

That’s why recognizing and properly valuing the land’s additional soil fertility gives a more accurate picture of its worth.

Doomsday hedge 

As a landholder with excess fertility, you essentially own two key ingredients for producing food, fiber and fuel:

1. Soil: The medium for a plant to soak up rain and sun
2. Plant food: Essential nutrients stored in the soil

What if food becomes scarce and inflation continues to erode currency value? Having a documented soil nutrient reserve can boost your investment returns as it gets appropriately revalued.

Not factoring in your soil’s nutrient reserves might result in underestimating your land's potential.

How a farming professional can help you leverage excess soil fertility

Knowing how to capitalize on your farmland’s extra soil nutrients can help you maximize your return on investment.

By effectively managing the land’s fertility, you can make it more productive and valuable. 

But you might miss these opportunities if you’re not aware of your fertility levels, fertilizer applications or farming practices.

A skilled partner-farmer can help you avoid this.

They’ll keep accurate records of soil nutrient levels. 

They’ll use soil fertility methods that improve productivity and preserve your land asset.

And they’ll routinely evaluate and adjust their soil management strategies to ensure optimal fertility.

Weiland Farms enhances soil nutrient levels through these proven methods. Learn more about how we improve soil fertility so you can fully take advantage of this important resource in your Iowa land investment.

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Reid Weiland is the managing partner of Weiland Farms.

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Disclaimer: This article is for general informational purposes only and does not constitute investment, financial or tax advice. You should consult with a licensed professional for advice concerning your specific situation.