Inflation Adjusted Farmland Values Well Below 1981 Levels
Agricultural policy is expected to affect the level of U.S. agricultural production and the value of assets and resources in the U.S. agricultural sector. Agricultural policies can be designed to be more or less intrusive in their impacts on production and asset values, and much of the debate in 1995 regarding U.S. farm policy centered on reduced control of growers’ management decisions. The FAIR Act of 1996 eliminated acreage reduction programs that had been a hallmark of U.S. agricultural policy for 20 years. Growers of program crops were provided wide-ranging flexibility in planting, and commodity price support programs, with the exception of the marketing loan, were eliminated.
Since the introduction of the FAIR Act in 1996 the U.S. production of agricultural commodities as a percent of world production has remained quite similar to its relative position in the previous 10 years.
|
U.S. Share of World Production |
|||
|
Crop |
1986 - 90 |
1991 - 95 |
1996 - 00 |
|
Wheat |
11.1 |
11.3 |
10.9 |
|
Corn |
40.0 |
40.1 |
40.9 |
|
Soybeans |
49.7 |
48.2 |
47.5 |
|
Cotton |
16.8 |
20.2 |
19.4 |
|
Rice |
1.4 |
1.5 |
1.5 |
These data would indicate that the low commodity prices of the past several years are not due to "over-production" by U.S. growers or U.S. agricultural policies blunting market signals to U.S. producers. The same low prices burden foreign producers and their production has obviously moved in concert with U.S. production. Care should be taken not to fall prey to the assumption that low prices define a situation of "over-production."
Resource values are affected by agricultural policy. There is considerable agriculture economics literature relating program structure and payments to asset valuation. There is also extensive economic literature noting that payments or program benefits that are not tied to production or management decisions have the least distortion in market signals and values.
Agricultural asset values have yet to fully recover from the farm financial crisis of the 1980s. Inflation adjusted U.S. farmland values fell 41% between 1981 and 1987. In 2001, inflation adjusted farmland values remain 21% below the value of farmland in 1981. After indexing average farmland values, as reported by USDA/NASS, using the gross domestic price deflator, the average annual increase in farmland value for the past five years was 3.3%. The modest increase in farmland values in the past five years is also heavily related to the continued pressure on farmland for non-agricultural uses. Across the U.S., the tremendous economic growth of the past decade has put significant pressure on agricultural lands at every urban and town fringe. This process is supporting values on millions of acres of farmland. USDA estimates that 19% of all farmland lies within a Standard Metropolitan Statistical Area (SMSA).