How will the 1996 Farm Bill affect the outlook for District farmland values?

Farmland values in the states of the Tenth Federal Reserve District rose about 5.5 percent over the year ended June 30, 1997. Indeed, over the past two years prices in many parts of the country have risen sharply. The jump in farmland values comes at a time of dynamic change in the farm sector. Last year, the federal government enacted sweeping farm legislation that both lowers payments to producers and removes many government controls on farm production.> Government payments have been an important source of farm income for many years, and have likely been capitalized into farmland values. Changes in federal subsidies could have important implications for values. Since farmland is three-fourths of the asset base of the farm sector, the impact of changes in policy on farmland values is crucial to the financial health of the sector.> What effect will the new farm bill have on farmland values? Lamb argues that the final impact of program reform will depend on two forces. In isolation, the removal of government subsidies will depress farmland values. On the other hand, agriculture?s newly found freedom could further lift land values. Subsidies have come with a price attached in the form of restrictions on planting flexibility and production, limiting farmers? ability to take advantage of expanding export markets. Freed from such restrictions, farmers may find that expanding export markets will lift farm commodity prices and farm income enough to outweigh the loss of income from declining subsidy payments.