What is your dairy farm really worth? And if you invest $1 million in a new facility, does that mean your farm’s value increases by $1 million?
Not necessarily.
For dairy producers considering expansion, purchasing land or planning a farm transition, understanding the difference between construction costs and market value can make a meaningful difference in long-term financial decisions.
On the Uplevel Dairy Podcast, Peggy Coffeen talks with Brad Herkenhoff, a Senior Dairy Lending Specialist, and Shelby Borman, a Certified General Appraiser, from Compeer Financial. Together, they explain what influences dairy farm appraisals, which improvements can add value and why an appraisal can be a useful tool well beyond securing a loan.
Land Values and Construction Costs: Understanding the Market
Land values and building costs have both been important considerations for dairy producers making investment decisions. But rising construction costs do not automatically translate into an equivalent increase in a farm’s appraised value.
In the conversation, Shelby discusses how construction costs have risen significantly since the pre-COVID period, while sale prices have not necessarily kept pace. That difference can leave producers investing more money in a project than the market is willing to recognize in its value.
Land values can also vary considerably by region. In areas with a strong dairy presence, demand from producers looking to expand or purchase nearby properties can influence prices. Understanding these local market conditions is an important part of evaluating a property.
The takeaway? A higher price tag doesn't automatically mean a higher market value.
Which Dairy Facility Improvements Add Value?
Not every farm improvement affects an appraisal in the same way. Features that improve a facility’s functionality and make it more attractive to a potential buyer can contribute to its value.
Shelby highlights several important considerations, including:
Milking center functionality: A well-designed milking center should support the size and operation of the dairy.
Cow comfort: Freestall barns and other improvements that support cow comfort can contribute to a facility’s appeal.
Ventilation: Proper ventilation is an important consideration when evaluating dairy facilities.
Manure storage: Adequate infrastructure can make a property more functional for a potential buyer.
Overall facility design: Buildings and equipment need to work together to support the operation they are intended to serve.
The key is to consider improvements from the perspective of the farm’s current and potential future use. An investment may be valuable to the producer making it, but the appraised value also considers what a buyer would be willing to pay.
Plan for the Farm You’re Building Toward
Expansion often happens in phases. A producer might build a milking parlor first, with plans to add freestall space later. Another farm might expand housing before upgrading its milking system.
While phased construction can help producers manage a large project, the order and timing of those investments matter.
As Shelby explains, an appraisal evaluates the property as it exists at the time of the appraisal. If a milking center is designed for a much larger herd than the existing facilities can support, a potential buyer may see a functional mismatch. Likewise, a large freestall barn paired with an undersized milking parlor may require additional investment.
Before beginning a project, producers should think through their long-term goals, anticipated herd size and the infrastructure needed at each stage.
Planning for the next phase is important—but so is understanding how the current phase stands on its own.
Location and Buyer Demand Matter
A dairy facility’s value depends on more than its buildings and acreage. Location and the potential pool of buyers also play important roles.
In dairy-dense regions, an existing facility may be attractive to a neighboring producer looking to expand. Purchasing a nearby site can be more practical than starting a new construction project, especially when building costs are high.
In areas with fewer dairy operations, the potential buyer pool may be smaller. A buyer may also need to establish new relationships, arrange feed supplies and manage additional logistical challenges.
These factors influence how attractive a property is to prospective buyers and can affect its market value.
That is why understanding local demand is an important part of evaluating a dairy property. The same type of facility may have different value in different locations.
An Appraisal Is More Than a Loan Requirement
Many producers think about appraisals when a lender requires one. But an appraisal can also help inform decisions before a transaction or major investment begins.
Consider these situations:
Before purchasing land or a facility: An appraisal can provide an independent perspective on market value before negotiations.
Before expanding: Understanding current property value can help producers and lenders evaluate financing options and available equity.
When planning a farm transition: A clearer picture of the farm’s value can help families begin conversations about succession, ownership and future plans.
When preparing to sell: An appraisal can help establish a starting point based on market conditions rather than relying solely on tax assessments or assumptions.
As Brad and Shelby discuss, the earlier producers understand their options, the more opportunity they may have to plan thoughtfully rather than make decisions under pressure.
An appraisal does not determine every business decision, but it can provide useful information for the people making those decisions.
Make Investments That Support Your Long-Term Goals
One of the central messages from the conversation is that not every dollar invested in a dairy farm returns a dollar in appraised value. That doesn't necessarily mean the investment is a poor business decision. It means producers need to understand what they are investing in, how it supports their operation and how the market may view the result.
Brad emphasizes the importance of understanding a farm’s goals over the next five, 10 or 15 years. From there, producers can work with their lender to prioritize projects, consider available equity and determine how to move forward.
Communication between the producer, lender and appraiser can help bring different perspectives to the table. Each plays a role in understanding the farm’s plans, the purpose of the investment and the factors that may influence its value.
Know Your Farm’s Value Before Your Next Big Decision
Whether you’re considering a new parlor, purchasing neighboring land, expanding cow numbers or planning a transition to the next generation, understanding your dairy farm’s current value can help you make more informed decisions.
Before your next major investment, talk with your lender or a qualified farm appraiser. Ask what your farm is worth today, which improvements may influence its value and how your plans fit into your long-term goals.
Growing your dairy isn’t just about how much you invest. It’s about making investments that move your business and family forward.
Listen to the full conversation on the Uplevel Dairy Podcast for more insights into dairy appraisals, farm value and planning for the future on Apple Podcast, Spotify and YouTube.
