A Critique Of The Literature On Us Farmland Values

Of immeasurable value to lenders, agricultural economists, and a host of agribusinesses this unique volume brings together leading farmland authorities in the United States and Canada to examine the economic determinants of land value and the consequences of change in land values. As the most basic factor of production in the agricultural enterprise, farmland dominates the agricultural balance sheet, accounting for an average of 70% of all agricultural assets. The authors of this timely book provide expert analysis and review of this subject.

Time-series methods are used to investigate farmland price dynamics in the United States (aggregate) as well as seven large agricultural states: California, Georgia, Iowa, Kansas, New York, Ohio and Texas. Vector Autoregressive Analysis (VAR) and Directed Acyclic Graph (DAG) methodology are used to unveil the contemporaneous and dynamic relationship of farmland values with four other variables commonly cited in farmland literature: real returns to farm assets, farm acreage, debt-to-asset ratio and interest rates. As empirical findings from DAG of all seven states and US aggregate analysis suggest, farmland values are greatly dictated by the financial condition of farm businesses (debt-to-asset ratio) as well as macroeconomic condition of the United States (interest rates) in contemporaneous times. An indirect effect of the fundamental contributor (returns to farm assets) via debt-to-asset ratio has also been discovered. Impulse Response Functions and Forecast Error Variance Decomposition as an alternative VAR tool agree with the findings of DAG when looked at the short term horizon. This specifically indicates farmland price dependence on debt-to-asset ratio and its lagged values, through time macroeconomic condition (interest rates) affects Farmland Prices with a further effect on Returns to Farm Assets. New York, California and Texas have exhibited slightly different patterns as compared to the other four states and US aggregate results. Farmland prices in New York are greatly dictated by interest rates, by debt-to-asset ratio in California and have exhibited particular exogeneity in Texas regardless of time horizon. Consistency in farmland price behavior in individual states and in the USA aggregate provides a strong basis to generalize finding over the other states. Consideration of other factors relevant to individual states should be considered to generate better explanations for some of the unexplained portion of my research. These might include, but are certainly not limited to, rapid urban expansion and commercial development in highly urbanized states, the impact of cattle farming and energy sector in Texas.