The Expanding Ethanol Market and Farmland Values: Identifying the Changing Influence of Proximity to Agricultural Delivery Points

The recent housing market bust and subsequent economic recession have led to a dramatic decline in urban land and housing values across the U.S. The same is not true, however, of agricultural land values. Parcel data on agricultural land sales from Ohio reveals that, although the number of agricultural land sales dropped precipitously after the housing market bust in 2007, there was no corresponding dip in the average sales price of agricultural land. Concurrent with the housing market bust, six new ethanol production facilities came into operation in Ohio in 2008. We hypothesize that changes in agricultural output markets, including increased demand for biofuels (and hence corn) and grain exports were capitalized into agricultural land values and that these effects offset the decline in the urban value of agricultural land parcels so that on average, agricultural and prices remained stable. Using parcel-level data on agricultural land sales from 2001 to 2010 for a 50-county region of western Ohio and a quasi-experimental design, we test for structural change in the relative effects of proximity to agricultural delivery points (including ethanol plants, grain elevators and ports)before and after 2007, the year of the housing market bust and concurrent ethanol market expansion in Ohio. Specifically, we use propensity score matching (PSM) and difference-in-difference (DID) estimation on matched samples to isolate the effects of proximity to agricultural delivery points and test the hypothesis that the relative effect of proximity to these destinations has increased since 2007. We find preliminary evidence that the marginal value of being within close proximity to an ethanol plant was not significant in the earlier part of the decade, but became significant after 2007. Specifically, results from the DID estimation with the matched sample suggest that the marginal value of being located close to (between 5 and 13 kilometers) an ethanol plant was \$419 per acre after 2007 and not significantly different from zero before this. In comparison, we find that the marginal value of being within close proximity of a grain elevator or agricultural terminal was positive throughout the decade and did not significantly change after 2007. Our results demonstrate the growing importance of the biofuels market for farmland values and show that proximity to ethanol plants has recently become a significant determinant of agricultural land values.