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Farmland sales under return and price uncertainty

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  • Odening, Martin
  • Plogmann, Jana
  • Musshoff, Oliver
  • Ritter, Matthias

Abstract

This paper investigates the observed heterogeneity in the liquidity of agricultural land markets. We adopt a real options model to determine the value of an opportunity to sell farmland and derive the optimal disinvestment triggers. A proportional hazards model is applied to estimate the duration between land sales in Germany and test the implications of the real options model. In contrast to expectations, we find an ambiguous effect of returns and price volatility on the optimal timing of land sales. There is no evidence that non-agricultural investors buy and sell land more frequently than farmers. Our results contribute to the current discussion on land market regulations, one major point of which is capping land prices. According to our results, such policies could increase the rent–price ratio and thus discourage land sales. In turn, the land supply would be reduced, causing further price pressure on farmland markets.
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Suggested Citation

  • Odening, Martin & Plogmann, Jana & Musshoff, Oliver & Ritter, Matthias, 2022. "Farmland sales under return and price uncertainty," 2024 Annual Meeting, July 28-30, New Orleans, LA 322077, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea22:322077
    DOI: 10.22004/ag.econ.322077
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    References listed on IDEAS

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    1. repec:ags:aaea22:335557 is not listed on IDEAS
    2. Ting Du & Chao Li & Zhaolin Wang, 2023. "Spatial Differentiation and Influencing Mechanisms of Farmland Transfer Rents in Mountainous Areas: Evidence from Chongqing and Its Surrounding Areas," Land, MDPI, vol. 12(3), pages 1-19, March.

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    Keywords

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    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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