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Build a competitive advantage in a modernizing farmland market with Granular’s FMS and AcreValue

Three years ago, Mike and I set out to build farm management software (FMS) to help farms make better business decisions by making better use of their farm data. We realized early on that while farms were using Granular FMS to optimize their existing operations, they also wanted tools to help them grow their farms.
Helping Farms Grow Bigger with AcreValue
Our customer had to make a big land related decisions. These are just a few examples of the hard questions farms had to answer:

What rent should I pay for my existing land?
Do I have the right profit margin and management controls to expand?
If so, what ground can I add to my operation and at what price?
How do I market myself effectively to prospective new landlords and capital partners?

That’s why Granular acquired AcreValue and launched it as our second product in January 2016. Patterned after Zillow and similar tools in residential real estate, AcreValue aggregates real estate and agronomic data on every parcel of farmland in the U.S., offers valuation estimates and publishes comparable sales.
Farms commonly use AcreValue to foster relationships with their landowners. When they are looking to rent or purchase land, they come to the table with professional AcreValue reports on the value of the land, soil ratings, crop history, sales data and more. This puts them in a much stronger position to market themselves to a new landowner or a capital partner and have a successful negotiation.
Launching New and Powerful AcreValue Features
AcreValue has taken off in the last year, attracting not just farmers, but also landowners, brokers, appraisers and bankers. AcreValue’s 30K+ registered accounts visit the site over 100K times each month and usage has been doubling every six months.

Over the next few months we will be adding valuation estimates in more states, water rights data, custom mapping tools, and sale listings. We will also be launching a paid version of AcreValue, called AcreValue PRO, with powerful search tools that allow users to prospect for land nationwide using screening criteria like owner, valuation, size, soil quality and more. With both its FMS and AcreValue products, Granular is working to give its farm customers a competitive advantage in the modernizing land market.
Integrating AcreValue with Granular FMS
The farmland real estate market and the farming market are both professionalizing and consolidating. Both markets are becoming less local, less relationship-driven and more business-oriented. We believe that the relationship between landowner and farm operator is going to become more professional, more transparent and more data-driven over time.
Granular FMS already helps farms share production data with landlords, calculate share rent, and analyze rental rates relative to yield history. Using our relationships with large institutional land investors, Granular has brokered many introductions that have helped our FMS customers connect with institutional capital partners interested in their geographic area. But this is just the beginning.
In the coming months, we will launch advanced AcreValue features that are only available to farms using Granular FMS. These features will allow Granular farms to market themselves on a confidential and pre-qualified basis to landlords and get early notification on land coming up for sale.
We believe Granular FMS and AcreValue together give our customers the right tools to manage better (profit per acre) and bigger (more acres) farms.

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If you rent the land you farm on, there’s a big chance your landlord has a relatively narrow understanding of what it takes to run a successful farm. With rent continuing to represent the largest expense on a farm’s budget, understanding farmland values with tools like AcreValue and getting a good grasp of field profitability can often represent the key to expansion.

According to a USDA study published late last year, we have recent confirmation to long-standing beliefs: farmland is largely a family asset passed down through generations. Some families transfer the farm and the land, others just hold on to the land and rent it out to farmers.

  • There are 911 million acres of agricultural land; 354 million (39%) of these are rented.
  • 64% of rented acres are passed down, 36% are acquired through a third party.
  • Corporations account for only 5% of landlords, but for 11% of rented acres.

The majority of landlords are removed from the day-to-day realities of running a farm or ranch. Of 2 million landlords, 87% are non-operators, and nearly half of these landlords have never farmed.

AgWeb_1.20.16_graph1 AgWeb_1.20.16_graph2

Fifty percent of all rented acres belong to the largest 7% of landowners, while the smallest 44% of landowners own only 6% of rented acres.

AgWeb_1.2-.16_graph3   AgWeb_1.20.16_graph4

So what does this mean in terms of effectively managing your rented acres?

1. Communicate. Nearly half of your landlords will have never farmed. They own a highly valuable asset that they’ve entrusted to you,, and might not have a good grasp of what it means to manage the asset effectively. Making your farm’s data available on a centralized and easy-to-access platform is a good way to start to educating your landlord about your practices and progress.

2. Network. If you’re looking to expand by renting more acres, get connected with the active professional investors in your area – they are more likely to be looking for new tenants than other farmers. The majority of land sales go to farmers who will operate the additional ground themselves, but investors still account for a significant portion of purchases (especially for large ones – if you want to grow your rented acres by 1,000 , this is the crowd to watch). In Iowa, according to the 2015 Iowa State Land Values Survey, 76% of farmland purchases went to farmers and 20% to investors.

3. Modernize.  Twenty eight percent of landlords are over the age of 75. This means that land is being passed down to a younger generation – one that’s more used to software, data and analysis than its predecessor. Generational transitions to younger landowners will require farmers to modernize not only their operation, but the way they build relationships. The ability to use tools such as cloud software to enable the quick and timely sharing of information and reporting will inevitably become an important competitive advantage in land negotiations and access to more acres.

Watch this video to hear what our network of professional investors look for in great tenants.

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Finding the right land at the right price is something our customers talk about often, and understandably so – in today’s market, the ability to access new land on favorable terms is a huge source of competitive advantage. As some of you may know, back in April we launched a test version of our farmland analysis site, AcreValue, in 3 states (Iowa, Illinois and Indiana) and we quickly learned from our customers that easy access to this data is invaluable to assessing new ground and negotiating rates on existing ground. So we’ve been spending the last six months dramatically redesigning and expanding AcreValue nationally to make it awesome and more complete, not just for farmers, but also for landowners, investors, bankers, brokers and other industry professionals. The new and expanded AcreValue is finally here.

One of AcreValue’s most important features is its Automated Valuation Model (AVM), the first AVM specifically built for the agriculture industry. AcreValue’s AVM analyzes terabytes of public data about farmland to automatically estimate the value of each field (you can think of Zillow’s “Zestimate” as a relevant example). While we will never be able to fully predict what a parcel of land will trade for, we want to help professionals in the market have an unbiased starting point, and to be able to easily compare across different parcels.
Before joining the team at AcreValue, I helped develop web and mobile products for the 50 million home shoppers using Trulia every month for their home search. Trulia was the first site to bring together home listings, comparable sales, crime maps, school ratings and other neighborhood info so that you could do all of your research in one place. What excites me about AcreValue is bringing together all of the critical data about farmland into a single site, a one-stop shop. AcreValue is not only the first to bring farmland data together in a single site, but to also offer a simple and intuitive user interface and to make the data accessible for free. There is no shortage of public data around farmland – parcel boundaries, characteristics about soils, expected productivity ratings, crop history, yield history, sales, etc. The problem is that this data, up until now, had been hard to find, hard to collect, and hard to summarize.
Visit AcreValue, play around and let us know what you think.

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How a Potato Grower Found 11% More Profit Using Granular

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  |  
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Farmland costs typically represent more than one third of a farm’s operational costs. The mix of owned vs. rented land has a significant impact on profitability, risk and the ability to scale. As a farm operation grows, there can be important differences resulting from expanding through rental or through acquisition of additional farmland.  What are the considerations when deciding to rent vs. buy more land? While not an exhaustive list, a few of the key differences are highlighted below:

1. Return:  In a rental scenario, returns on ownership (appreciation of the asset) accrue entirely to the owner, while operational returns (farming profits) accrue to the operator, or are shared between owner and operator. In a purchase scenario, the operator captures both the ownership and operational returns. And the two types of returns are not necessarily correlated. So one question to ask is: do you want to be in the farming business or the real estate business?
2. Control:  Ownership allows for complete control over the land. An owner-operator is in complete control of how long to farm the ground, while a renter is always subject to risk of losing the land if ownership changes or another renter is selected to farm the land. An owner-operator also has complete freedom to choose agronomic practices, while a renter may have restrictions from the landowner. Control over the land is particularly important when growing permanent crops, which require significant long-term investment in the ground before achieving profitability.

According to the USDA, the average share of farmland that’s rented in the United States is 38%; in the Corn Belt and Delta, that share is over 50%, whereas in the Southeast region, where permanent crops are much more common, the share can be less than 20%.
usda_trends_in_farm_value_report_pdf__page_37_of_55_
3. Investment portfolio: 98% of farms in the U.S. are family farms and thus it is typically viewed that a farm’s assets are the family’s assets. Farmland ties up a significant amount of wealth. Compiling USDA data, the average value of the real estate per farm in the U.S. is $1.28M (2012 Census of Agriculture, USDA and NASS; 2014 USDA Average Farmland Real Estate Values), and the asset is illiquid due to limited transaction volume (see #4). It is important to evaluate farmland investments against the family’s broader portfolio of assets – residential real estate, stock, bonds, cash etc., and consider how farmland fits with investment horizon, risk appetite, and opportunities for alternative investments.
4. Turnover: The turnover of farmland is known to be very low. One University of Illinois study concludes that about 1% of farmland acreage in Illinois changes ownership at arm’s-length per year. Ability to expand by acquisition is further constrained by the need for new land to be in close proximity to the current farm operation. A farmer may wait an entire lifetime for adjacent land to come up for sale. And the choice to rent vs. buy may not be a choice at all – as Jeremy Jack of Silent Shade Planting in Mississippi puts it, “You can’t just get land when you’re ready; land comes to you when it’s available.”
5. Capital allocation: A farm operates with a finite amount of capital (debt and equity) it can deploy to sustain and grow the  farm operation. How much capital is available and what’s the optimal mix of capital allocation to land vs. machinery and other assets? If the objective is to expand and scale quickly, then tying up a significant amount of capital in land can limit the capital available to increase the scale of the total farm operation.
In summary, the question to buy vs. rent is a choice between ownership returns vs. operational returns while considering optimal capital allocation between the equipment base and land base given the farm’s business objectives and the family’s broader investment portfolio. In the case of permanent crops, leasing may not be a viable alternative and ultimately, availability of suitable purchase vs. leased land will trump all other considerations.
To explore farmland values in Iowa, Illinois and Indiana, visit AcreValue.

Latest

How a Potato Grower Found 11% More Profit Using Granular

Learn how Granular helped a real farm discover that their variety choice was costing them $800 per acre

Karl Wozniak, Role
  |  
September 11, 2017

Company News

Our Continued Committment to Independence and Data Privacy

Karl Wozniak, Role
  |  
September 11, 2017

Our Continued Committment to Independence and Data Privacy

Karl Wozniak, Role
  |  
September 11, 2017

Our Continued Committment to Independence and Data Privacy

Karl Wozniak, Role
  |  
September 11, 2017

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Three Ways to Run a Successful Harvest

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Granular’s Chairman of the Board of Advisors Kip Tom was featured today in the New York Times.  The article, written by Quentin Hardy, profiles Tom Farms and describes the way in which technology has helped the operation grow and adapt in a rapidly evolving ag industry. We are proud to have such an innovative leader as Kip on the Granular team. Read the full article  (and watch the video) on the NYT site by clicking on the link below.

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How a Potato Grower Found 11% More Profit Using Granular

Learn how Granular helped a real farm discover that their variety choice was costing them $800 per acre

Karl Wozniak, Role
  |  
September 11, 2017

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Our Continued Committment to Independence and Data Privacy

Karl Wozniak, Role
  |  
September 11, 2017

Our Continued Committment to Independence and Data Privacy

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  |  
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Our Continued Committment to Independence and Data Privacy

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  |  
September 11, 2017

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