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Farmland Prices: Is this Time Different?

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  • Lence, Sergio H.

Abstract

The historical behavior of farmland prices, rental rates, and rates of return are examined by treating farmland as an asset with an infinitely long life. It is found that high (low) farmland prices relative to rents have historically precededextended periods of low (high) net rates of return, rather than greater (smaller) growth in rents. Our analysis shows that this attribute is shared with stocks and housing, and the financial literature provides ample evidence that other assetsfeature it as well. The long-run relationship linking farmland prices, rents, and rates of return is analyzed. Based on this relationship, we conclude that recent trends are unlikely to be sustainable. The study explores the expected paths thatfarmland prices and rates of return might follow if they were to eventually conform to the average values observed in the historical sample, and concludes with a discussion of the policy implications. Recommendations for policy makers include close monitoring of farmland lending practices and institutions to allow early identification of potential problems, and identifying in advance appropriate interventions in case recent farmland market trends were to suddenly change.

Suggested Citation

  • Lence, Sergio H., 2014. "Farmland Prices: Is this Time Different?," Staff General Research Papers Archive 38979, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:38979
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    File URL: http://aepp.oxfordjournals.org/content/early/2014/09/12/aepp.ppu027
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    Cited by:

    1. Moschini, GianCarlo & Lapan, Harvey & Kim, Hyunseok, 2016. "The Renewable Fuel Standard: Market and Welfare Effects of Alternative Policy Scenarios," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235721, Agricultural and Applied Economics Association.
    2. GianCarlo Moschini & Harvey Lapan & Hyunseok Kim, 2017. "The Renewable Fuel Standard in Competitive Equilibrium: Market and Welfare Effects," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 99(5), pages 1117-1142.

    More about this item

    Keywords

    farmland; Rate of return; price; rents;

    JEL classification:

    • Q14 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Finance

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