Academic journal article Economic Review (Kansas City, MO)

The Dispersion of Farmland Values in the Tenth District

Academic journal article Economic Review (Kansas City, MO)

The Dispersion of Farmland Values in the Tenth District

Article excerpt

The value of U.S. farmland has varied widely within and across regions over the last 15 years. Although average farmland values have declined modestly over the past couple of years, farmland values in some areas have fallen sharply, while farmland values in other areas have risen. In recent years, un-usually high or low prices at farmland sales have become increasingly likely.

Understanding what drives farmland values across regions can provide crucial information about the financial health of farms. Cortney Cowley examines the effects of soil quality, natural amenities, climate, agricultural production, and other location-specific characteristics on farmland values in the Tenth Federal Reserve District. She finds that better soil quality, more precipitation, and larger corn and cattle sales are associated with higher farmland values, while greater distance from urban areas and higher temperatures are associated with lower farmland values.

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The value of U.S. farmland has varied widely within and across regions over the last 15 years. Although average farmland values have declined modestly over the past couple of years, farmland values in some areas have fallen sharply while farmland values in other areas have risen. In recent years, unusually high or low prices at farmland sales have become increasingly likely.

Understanding the dispersion of farmland values across regions is important for several reasons. Farmland is interconnected with all aspects of farm wealth and agricultural credit. For example, declining farmland values are typically correlated with farm financial stress, while increasing farmland values are associated with strength in the farm sector (Briggeman, Gunderson, and Gloy). Also, farm owners derive most of their wealth from farm real estate, which accounts for approximately 80 percent of the assets on farm balance sheets. As a result, farmland is an important aspect of the financial health of farms and vital collateral for agricultural lending.

In this article, I examine the effects of soil quality, natural amenities, climate, agricultural production, and other location-specific characteristics on farmland values in the Tenth Federal Reserve District. The Tenth District covers an area of more than half a million square miles over seven states and contains concentrated urban centers as well as vast rural counties with population densities less than one person per square mile. Average annual precipitation ranges from less than 10 inches in parts of the Mountain States (Colorado, New Mexico, and Wyoming) to over 50 inches in southeastern Oklahoma. Additionally, the type and quality of soil, the length of the growing season, and the availability of water differ by location and likely influence agricultural production and farmland values. I find that better soil quality, more precipitation, and larger corn and cattle sales are associated with higher farmland values, while greater distance from urban areas and higher temperatures are associated with lower farmland values.

Section I describes variations in farmland values throughout the Tenth District. Section II characterizes potentially important natural, agricultural, economic, and physical land attributes. Section III discusses the effects of these land attributes on the cross-sectional dispersion of farmland values among states in the Tenth District.

I. The Dispersion of Tenth District Farmland Values

Although farmland values vary across Tenth District states and counties, the distribution of these values has widened over time. To assess how land attributes affect the cross-sectional dispersion of farmland values, I use data from the Tenth District Survey of Agricultural Credit Conditions (henceforth referred to as the Ag Credit Survey). Of the 12 Federal Reserve Districts, the Tenth District is the most concentrated in agriculture by several measures, including average farm income as a share of personal income, farm-dependent counties, and agricultural banks. …

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