Farmland Values, Land Ownership, and Returns to Farmland, 2000-2016

Abstract

Farmland plays a unique and important role in agriculture. Farm real estate (which includes land and the structures on it) accounts for over 80 percent of farm-sector assets. Farm real estate values reached record highs in 2015, driven by high net cash farm income and low interest rates. However, farmland appreciation has slowed considerably over the last 2 years due to lower commodity prices and lower net cash farm income, raising questions about the potential impact on farm financial stress. This study finds that farmland appreciation lowered the share of farms that were considered financially stressed in 2000-2012, particularly those that owned less than one-quarter of their acres operated. It also finds that farms that owned at least 50 percent of their acres purchased more farmland during periods of high appreciation and land equity gains. Finally, using an economic model, it finds that current farmland values are not supported by returns to farming, suggesting that a decline in values is possible.