Graduate Thesis Or Dissertation
 

The cyclical behaviors of agricultural farmland prices

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  • This research studies the cyclical behavior of agricultural farmland prices in the United States with a special emphasis on how agricultural policies contribute to farmland price movement. The first stage of the study is to have a conceptual understanding of how agricultural policies affect the behavior of farmland prices. A theory is developed to accomplish this goal. It assumes that a farmer maximizes the expected utility generated from production profit subject to an uncertain wealth accumulation process and government policy constraints. The farmer's choice variables are how much input to use and how much land to hold. Based on this framework, the farmland price is endogenously determined from the farmer's optimizing behavior. It shows that in states where the farmer's expected rate of appreciation of land price is higher than the rate of return in off-farm investment, government transfer payment programs can actually increase the variability of the farmland price. On the contrary, in states where the farmer's expected rate of appreciation of land price is lower than the rate of return in off-farm investment, government transfer payments do stabilize the fluctuation of the prices. The second stage of the research is to empirically analyze the cyclical behavior of farmland price. Annual land price data were collected from the USDA for the years 1910-1989. The data on total state agricultural cash receipts and government program transfer payments are from Agricultural Statistics. The ratio of government transfer payments to total state agricultural cash receipts is formed to measure the relative importance of agricultural programs in each state. Nonparametric procedures are used to analyze the volatility, persistence, and comovement of agricultural land prices in 48 states. The result indicates that the behavior of farmland prices differs in two groups of states. In group one, which includes almost all of the North Central and Plains states, the empirical results show that the volatility has increased after farm policies were introduced. The movement of the farmland prices turn from stationary to being nonstationaly. However, in group two, including almost all of the New England and Mid- Atlantic states, the volatility and persistence of the farmland prices are not statistically significant. In fact, in some of the latter groups, the volatility and persistence actually declined after farm policies have been introduced. Finally, the empirical findings also show that although the general macroeconomic conditions are important in the forming of farmland prices in each state, specific economic and geographic factors also play an important role in the cyclical behavior of farmland prices.
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