Understanding Changes In Farmland Prices

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.

Farmland comprises 85% of the assets in production agriculture. Surveys show over a 32.5% increase in values from 2010 to 2011 in Iowa. An analysis of recent farmland sales data leads to a better understanding of both why prices have been increasing, and possible changes in prices in the future. The factors examined include parcel size, land productivity, and location and type of sellers and buyers. The analysis is both over time and static; it compared characteristics from year to year, and it compared characteristics in the same year. A data set with land sales from 20 randomly selected Iowa counties for five years was analyzed using a hedonic model to decompose the values various attributes of land contribute to the total sale price per acre. This was used to determine the effects of these factors and to see if these effects change over time. Next, the sales values were compared to land value surveys conducted every year. Using NPV (Net Present Value) formulas, the sales values were examined to determine an implied interest rate, and compared to rent-to-value ratios. Analysis of descriptive statistics shows approximately 85% of parcels sold are in the lower two-thirds of productivity. The percentage of ``Sole Proprietor'' buyers and sellers has fallen by over half since 1990. A higher percentage of parcels are being sold in the fourth quarter of the year. Buyers who live in-state are buying higher quality land; sellers from out-of-state are selling higher quality land. Both out-of-state buyers and sellers are buying and selling larger parcels than those in-state. The analysis reveals that land value survey results from Iowa State University are consistently higher than sale prices by an average of 9.5%. This difference is not statistically significant. Two hedonic models capture corn suitability rating (CSR), lagged cash rent, and some locational variables as statistically significant for every year modeled. Implied interest rates are 3.2% and 6.4% higher than th

Lean supplies, strong export activity, and vibrant demand both at home and abroad have pushed crop prices to record highs, offsetting today¿s spiraling production costs. As a result, farm profits and investments have soared, and farmland values have boomed. The author discusses current farmland value trends and analyzes the factors underlying the recent surge. He concludes that the recent surge in farmland values tracks expected gains in crop returns. At the same time, however, an unexpected surge in production costs or a drop in crop prices could undercut farmland values and pose a financial risk to the farm sector. Thus far, however, the industry¿s debt levels are up only modestly, helping to mitigate the risks of a drop in farm incomes. Charts and tables.