U.S. COMMODITY POLICIES AND LAND PRICES

Abstract

this paper I refer to land or real estate values rather than land prices. The data used are from the Agriculture Census and corresponding USDA surveys. These data are derived from surveys in which farmers are asked their estimate of what their farm (land and buildings) would sell for. Thus the data are not market prices. They may over- or under-estimate average market prices of farm real estate; the between this story and U.S. commodity programs? The New Deal was introduced in 1933, but if it resulted in any significant capitalization of rents into land values during its first decade, that is not apparent. The idea of a relatively minor role of the programs is suggested by the existence of one major episode of land-value changes, the commodities boom and bust of the 1970s and 1980s. This was a market-driven event. One does not see land value changes anywhere near this substantial that are plausibly attributed to commodity programs. But maybe the turnaround from a long-term trend of declining real farmland values to a rising trend in the post-World War II period is in part attributable to the existence of commodity support (so that if the support had been absent, land values might have continued to fall)? Econometric studies of time series of farmland prices have not found solid empirical evidence of farm program effects on land prices. Indeed, the tenor of these studies, a recent example of which is Just and Miranowski (1993), is that macroeconomic variables are the dominant explanatory factors in changes in U.S. farmland values. A particular difficulty in estimating program effects in time series data is that payments fall in the periods when market prices are high (like the 1970s), which are the periods when farmland prices rise most. In this situation one needs to ho...