Farmland values: the rise, the fall, the future

After nearly 4 decades of generally steady appreciation, US farmland values increased 4-fold from 1971 to 1981 and then fell 30% during the next 5 years. After adjusting for inflation, farmland values now average about what they did when this cycle began 15 years ago. Understanding the interactions...

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Bibliographic Details
Published in:Economic review (Kansas City) 1987-04, Vol.72 (4), p.19-35
Main Author: Barkema, A.D
Format: Article
Language:English
Subjects:
Agricultural banking
bid price models
Econometrics
EVALUACION
EVALUATION
Factors
FARMLAND
Farms
Inflation
Interest rates
KANSAS
LAND
Land values
Mathematical models
MISSOURI
MODELE
MODELOS
Predictions
Prices
Studies
SURFACE AGRICOLE UTILE
TENDENCE
TENDENCIAS
TERRE
TIERRAS
TIERRAS AGRICOLAS
TRENDS
United States
Values
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Summary:After nearly 4 decades of generally steady appreciation, US farmland values increased 4-fold from 1971 to 1981 and then fell 30% during the next 5 years. After adjusting for inflation, farmland values now average about what they did when this cycle began 15 years ago. Understanding the interactions of a few important factors may provide an indication of the direction farmland values are likely to take in the future. On the basis of farm return and interest rate data from the Tenth Federal Reserve District, a bid-price model is developed that shows that the residual return to farmland, the expected rate of growth in the real return to land, the expected rate of inflation, and the expected real interest all combine to determine the maximum price that an investor would be willing to pay for farmland. Analysis suggests that overall, until world supplies of grain fall more in line with demand, farmland values are likely to move lower, as the support provided by government commodity programs declines.
ISSN:0161-2387
2163-422X