US agricultural support programs and ethanol policies effects on farmland values and rental rates

Purpose - In recent years, prices for prime farmland have increased substantially, begging the question is the dramatic increase the result of a speculative bubble or consistent with market fundamentals with increases driven by increased global demand, low interest rates, and recent changes to US agricultural and energy policies. The purpose of this paper is to investigate the impacts of recent agricultural support policies and ethanol policies on farmland values and rental rates. Design/methodology/approach - Farm-level Agricultural Resource Management Survey data collected by the United States Department of Agriculture (USDA) between 1998 and 2008 as well as county-level data collected by the USDA, US Census Bureau, and Bureau of Economic Analysis are used to determine the impacts of recent agricultural support policies and ethanol policies on farmland values and rental rates, while controlling for parcel characteristics and urban pressure. Specifically, weighted ordinary least squares and two-stage least squares are used to investigate the impact of various governmental agricultural support policies, corn ethanol facilities location, and local corn ethanol production capacity on farmland values and rental rates. Findings - The results indicate that government payments, urban pressure, and the proximity of the parcel to an ethanol facility have a positive impact on both farmland values and rental rates. More specifically, parcels located in the same county as at least one corn ethanol facility are more valuable and command higher rental rates. In addition, county-level ethanol production capacity is positively associated with farmland values and rental rates. An inverse relationship between distance of the parcels from an ethanol facility and farmland values is also found; a similar result is found for rental rates. Research limitations/implications - The findings suggest that agricultural support payments and ethanol policies are capitalized into farmland values. These findings have important implications for the formulation of future farm policy. A limitation of the analyses is that farmland values are estimated by landowners; future research could utilize farmland transaction data to overcome potential biases generated by using landowner estimates. In addition, while our study period covers 11 years, future research could expand the time period further to analyze the effect of more recent agricultural and ethanol policies. Originality/value - This paper extends prior research pertaining to factors influencing farmland values and rental rates by also examining the proximity of the parcel to an operating ethanol facility using a unique data set.