Farmland Valuation: A Net Present Value Approach Using Simulation
Chris Westergard, Dagmar, MT, defended his thesis, “Farmland Valuation: A Net Present Value Approach Using Simulation” on April 3, 2015. He is the Owner/Manager of Westergard Farms LLC. Westergard is a spring graduate from Kansas State University with a Master of Agribusiness (MAB) degree.
In production agriculture, land is generally about 80% of the asset value on a balance sheet. Land is one of the most difficult assets to acquire and requires increasing amounts of capital. Commercial production agriculture operations continue to increase in size due to consolidation, and the financial impact of a land purchase has increased during recent years.
“What is land worth? That’s the million dollar question,” Westergard said. “Purchasing farmland requires a significant commitment of capital, and one of the chief considerations for producers when contemplating purchasing a property is the return they can expect to receive off of their investment over the course of its productive life.”
While many factors affect the decision to buy, Westergard’s thesis addresses the purchase question through the use of financial tools such as net present value (NPV) and simulation to help farmers determine what price they could pay for a particular property and still expect a positive return on their investment.
Dr. Allen Featherstone, Professor of Agricultural Economics and Westergard’s thesis advisor, said, “Mr. Westergard constructed a model that he can use to value land purchases for his operation. The benefit of this analysis is that it allows for him to examine the risk associated with a land purchase so that he can more appropriately price potential land purchases while maintaining an acceptable amount of risk for his operation.”
The full thesis publication can be found online on Kansas State University’s Research Exchange at http://hdl.handle.net/2097/19035.