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Bankers' Forecasts of Farmland Value

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  • Covey, Ted

Abstract

Bankers exhibit superior information-discrimination skills in contrast to an unbiased constant-forecast model regarding the future quarterly trend in farmland values. However, this skill has to be weighed against bankers' greater forecast bias. Bankers were especially accurate at assigning low-biased, highly resolved probabilities to quarterly downtrends. Given that previous land values had experienced a long-term downward trend, this suggests that bankers are able to use recent lessons learned from their experiences with long-term trends in their forecasts of short-term trends for the same direction. Bankers' excessive optimism concerning rising land values suggests they may be holding excessively large portions of their assets in farm real estate loans, as well as requiring too little farmland as collateral on real estate loans, leaving them more exposed to default risk than they realize.

Suggested Citation

Handle: RePEc:ags:nc8191:285740
DOI: 10.22004/ag.econ.285740
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