How Does Soil Productivity Determine Land Value?

In agriculture, we know that not all soils are equal. While some soils achieve high productivity, others have limitations related to texture, depth and drainage that lower their yields. These diverse variations make it challenging to directly compare two soils. 

What Is a Soil Productivity Index?

Whether you’re considering buying new ground or considering the yield potential of your soils in your management decisions, soil productivity indices can help. Soil productivity indexes (PIs) are relative scales by which different soils can be compared and assessed. By taking into account many factors that determine yield potential, a soil PI provides a single number to rate soil quality.

There are several publicly available soil PIs covering a range of geographies and some that focus on specific crops. Most PI systems give ratings to each soil data maintained by USDA-NRCS which can be used to map soil types within a field. Typically soil PI scores don’t change over time, unlike crop yields. They represent something more akin to average yield over time. In fact, average crop yields are typically used in constructing soil PIs.

Taking a Closer Look at the Illinois Soil Productivity Index (ILPI)

As an example, let’s take a closer look at the Illinois Soil Productivity Index (ILPI). The ILPI rates soils in Illinois for suitability for several major crops under best management practices. Like other soil PIs it summarizes multiple factors that affect the productivity of soils into one simple number. It’s a notable example of a soil PI because of its wide adoption in farmland real estate by farmers, appraisers, and tax assessors.

In this article, we’ll answer the following: 

• How is the Illinois Soil Productivity Index (ILPI) calculated?

• What is a good Illinois Soil Productivity Index (ILPI) for farm land?

• How are crop yields related to the Illinois Soil Productivity Index (ILPI)?

• How are land values and cash rents related to the Illinois Soil Productivity Index (ILPI)?

How Is the Illinois Soil Productivity Index (ILPI) Calculated? 

The ILPI is the most widely used soil PI in Illinois, and it’s only available for soils in that state. Developed at the University of Illinois, it combines historical crop yield records and soil characteristics to produce a relative rating of seven key crops in the state. 

To establish the ILPI, researchers first calculated the highest crop yields for each of the 800+ soils in the state using data from several sources, including university trial data, agronomic check plots on farmer fields, and yield monitor records from farmers and researchers. The top 16% crop yields for a given soil indicates yield potential with "optimum" management. 

Then, one widely distributed soil with plenty of data was used as a benchmark: Miscatune silt loam. That soil was assigned an ILPI score of 147. Area-weighted crop yields for each other soil were then compared to the Miscatune silt loam benchmark yield. Soils with lower yields were given proportionally lower ILPI scores.

[Additional details on the methodology can be found in the authoritative documentation - “Crop productivity index for optimum management.”]

Soil PIs, including ILPI, are unitless; they are relative and not absolute measures of productivity. The range of ILPI is 47-147, with higher numbers indicating more productive soils. 

Why 47-147? It’s likely just an artifact of the ILPI’s history. The current-day ILPI rating adapted earlier work in the 1970s which may have used a scale based on actual corn yields to indicate productivity.

What Is a Good Illinois Soil Productivity Index (ILPI) for Farm Land?

In Illinois, a broad grouping of soils into categories can be made, using the following guide:

• Excellent (ILPI higher than 133): Very productive soils.

• Good (ILPI 117 to 132): Productive soils with some properties that limit yield to remain below the excellent ones. These limitations can include sub-optimal texture, water-holding capacity, cation exchange capacity, etc. 

• Average (ILPI 100 to 116): Average to good soils. They may evidence some limitation to their yield, for example, low rooting depth, low permeability, or high clay in the subsoil. 

• Fair (ILPI below 100): below average soils, usually with limitations like adverse topography, flooding, erosion, etc.

How Are Crop Yields Related to the Illinois Soil Productivity Index (ILPI)?

The figure below shows the association between ILPI and yield. The relationship is strong and linear and consistent across crops. The R2 for corn is 0.73, and for soybeans is 0.67, which means that the prediction is not exact and there is an error around it. In that matter, the median error for corn is +/-6.8 bu/ac, and for soybeans is +/-2.8 bu/ac.

How Are Land Values and Cash Rents Related to the Illinois Soil Productivity Index? 

Since ILPI was created to classify soils based on yield, it is also strongly associated with economic variables that depend on yield. The figure below illustrates two examples that also show a linear relationship. 

In the case of cropland value, the R2 is 0.74, and the median error is +/-650 $/ac. For cropland rent, the R2 is 0.75, and the median error is +/-15 $ac.

Knowing the ILPI brings transparency to the Illinois agricultural sector, allowing comparisons among different soils and fair price calculations adjusted by soil productivity.

Interested in Learning More About Illinois Farmland Values? 

The FBN® Illinois Land Values Report (Fall 2022) provides timely, data-driven insights about local land markets and valuations to empower you in future farmland transactions. Unlike any other land valuation publication, FBN’s new report delivers deep insights into U.S. market conditions based on multiple data points, including soil quality, land productivity, historical ag yield data and real estate transaction records. Download the report for free using the form below. 

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