Farm management AGEC 325 Exam
Questions and Answers Graded A+
Chapter 20: Land - Control & Use - Correct answer-
What has happened to farm land values recently? - Correct answer-- inflationary
effect has been significant
- real value hasn't changed much, only a slight upward (increasing) trend
What makes land unique? - Correct answer-- permanent resource that doesn't
depreciate (unless you don't take care of it)
-it is immobile
- supply of land is fixed, so land prices are sensitive to changes in demand
Trend of annual change in US farmland values - Correct answer-- upward trend in
the 70s-80s
- decrease from 80s-90s
- increase from 90s-2005
- drop off in 2009
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,What decisions must be made when controlling land? - Correct answer-- How
much land to control (
- How to acquire it (think in terms of control)
How can control be achieved? - Correct answer-ownership or leasing (nearly half
of US farmland is leased)
Advantages of Ownership - Correct answer-1. Security of tenure (don't have to
worry)
2. Loan collateral
3. Management independence and freedom (when people lease land, sometimes
they still control what you do with the land)
4. Hedge against inflation
5. Pride of ownership
Disadvantages of Ownership - Correct answer-1. Cash flow (if you own it, you
have to pay for it)
2. Lower return on capital (
3. Less working capital (if money is spent on your land)
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,4. Size limits (if you buy land, you probably can't buy as much as you could
borrow)
Advantages of Leasing - Correct answer-1. More working capital (morey isn't
spent on buying land)
2. Additional management
3. More flexible size (you can lease more land for a lower price than if you bought
it)
4. More flexible financial obligations (sometimes leaser will accept various
payment in the forms of crops, animals, etc.)
Disadvantages of Leasing - Correct answer-1. Uncertainty (don't know what'll
happen after lease ends)
2. Poor facilities (serious issue - if landlord doesn't operate land themselves, they
have little incentive to keep up the fences, machines, etc.)
3. Slow equity accumulation (if your paying a lease, you're not gaining equity)
What is value determined by? - Correct answer-- Soil, topography, climate
- buildings and improvements (people will pay more for better environment)
- Size
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, -Markets (price per acre for big land is less - like buying in bulk)
- Community (school district, tax rates)
- Location
- Competing uses (some are willing to pay more)
- Agricultural program characteristics (crop land areas, base acres, crop insurance,
etc.)
Land appraisal - Correct answer-- income capitalization (calculate return on land
and figure out opportunity cost & decide if you can afford the land)
- market data (in texas, land return will always be less than the land cost, so what
we do is make adjustments
How do you calculate income capitalization? - Correct answer-V=R/d
V = expected value of land
R = annual net income
d = discount rate
Market Data Approach - Correct answer-- prices are adjusted for differences in
factors that contribute to value
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
Questions and Answers Graded A+
Chapter 20: Land - Control & Use - Correct answer-
What has happened to farm land values recently? - Correct answer-- inflationary
effect has been significant
- real value hasn't changed much, only a slight upward (increasing) trend
What makes land unique? - Correct answer-- permanent resource that doesn't
depreciate (unless you don't take care of it)
-it is immobile
- supply of land is fixed, so land prices are sensitive to changes in demand
Trend of annual change in US farmland values - Correct answer-- upward trend in
the 70s-80s
- decrease from 80s-90s
- increase from 90s-2005
- drop off in 2009
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,What decisions must be made when controlling land? - Correct answer-- How
much land to control (
- How to acquire it (think in terms of control)
How can control be achieved? - Correct answer-ownership or leasing (nearly half
of US farmland is leased)
Advantages of Ownership - Correct answer-1. Security of tenure (don't have to
worry)
2. Loan collateral
3. Management independence and freedom (when people lease land, sometimes
they still control what you do with the land)
4. Hedge against inflation
5. Pride of ownership
Disadvantages of Ownership - Correct answer-1. Cash flow (if you own it, you
have to pay for it)
2. Lower return on capital (
3. Less working capital (if money is spent on your land)
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
,4. Size limits (if you buy land, you probably can't buy as much as you could
borrow)
Advantages of Leasing - Correct answer-1. More working capital (morey isn't
spent on buying land)
2. Additional management
3. More flexible size (you can lease more land for a lower price than if you bought
it)
4. More flexible financial obligations (sometimes leaser will accept various
payment in the forms of crops, animals, etc.)
Disadvantages of Leasing - Correct answer-1. Uncertainty (don't know what'll
happen after lease ends)
2. Poor facilities (serious issue - if landlord doesn't operate land themselves, they
have little incentive to keep up the fences, machines, etc.)
3. Slow equity accumulation (if your paying a lease, you're not gaining equity)
What is value determined by? - Correct answer-- Soil, topography, climate
- buildings and improvements (people will pay more for better environment)
- Size
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, -Markets (price per acre for big land is less - like buying in bulk)
- Community (school district, tax rates)
- Location
- Competing uses (some are willing to pay more)
- Agricultural program characteristics (crop land areas, base acres, crop insurance,
etc.)
Land appraisal - Correct answer-- income capitalization (calculate return on land
and figure out opportunity cost & decide if you can afford the land)
- market data (in texas, land return will always be less than the land cost, so what
we do is make adjustments
How do you calculate income capitalization? - Correct answer-V=R/d
V = expected value of land
R = annual net income
d = discount rate
Market Data Approach - Correct answer-- prices are adjusted for differences in
factors that contribute to value
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
