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Capitalization of Farm Program Benefits into Land Values

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  • Reinsel, Robert D.
  • Krenz, Ronald D.

Abstract

Report Summary: The total capitalized value of farm program benefits was obtained by summing estimated allotment values per acre for crops under the programs. Although the final estimates may be subject to some error, they provide a new perspective on the capitalization process. Short-term program returns were found to represent an important factor in annual returns to labor and management. In 1970, the total capitalized value of certain program benefits was about $16.5 billion, or 8 percent of the value of farm real estate. Since 1955, land buyers have paid an estimated $5.9 billion to buy program benefits but only $2.7 billion of this amount remained unrecovered in 1970. The difference between unrecovered investment and opportunity value--$14 billion--represents an increment to value above the actual investment of land and allotment owners. In the past, people have generally assumed that most farm program benefits have been capitalized into land values at rates similar to farm mortgage interest rates. Apparently, more of the short-term earnings go to other factors; perhaps only a third to a half of total short-term earnings accrue to land. Further, the average capitalization rate is probably 1.5 to 3 times the mortgage rate of interest.

Suggested Citation

  • Reinsel, Robert D. & Krenz, Ronald D., 1972. "Capitalization of Farm Program Benefits into Land Values," Miscellaneous Publications 324159, United States Department of Agriculture, Economic Research Service.
    • Handle: RePEc:ags:uersmp:324159
    DOI: 10.22004/ag.econ.324159
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    References listed on IDEAS

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    1. Seagraves, James A. & Manning, Richard C., 1967. "Flue-Cured Tobacco Allotment Values And Uncertainty, 1934-1962," Department of Economics and Business - Archive 259726, North Carolina State University, Department of Economics.
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    Cited by:

    1. Brake, John R. & Melichar, Emanuel, 1977. "Agricultural Finance and Capital Markets," A Survey of Agricultural Economics Literature, Volume 1: Traditional Fields of Agricultural Economics 1940s to 1970s,, Agricultural and Applied Economics Association.
    2. Meekhof, Ronald L. & Penn, J.B. & Johnson, James & Miller, Thomas A., 1980. "Agricultural-Food Policy Review," Economics Statistics and Cooperative Services (ESCS) Reports 279723, United States Department of Agriculture, Economic Research Service.
    3. Brandow, George E., 1977. "Policy for Commercial Agriculture, 1945-71," A Survey of Agricultural Economics Literature, Volume 1: Traditional Fields of Agricultural Economics 1940s to 1970s,, Agricultural and Applied Economics Association.
    4. Reinsel, Robert & Reinsel, Edward, 1979. "The Economics of Asset Values and Current Income in Farming," 1979 Annual Meeting, July 29-August 1, Pullman, Washington 278182, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Gertel, Karl, 1985. "Differing Effects of Farm Commodity Programs on Land Returns and Land Values," Agricultural Economic Reports 307999, United States Department of Agriculture, Economic Research Service.
    6. Johnson, James D. & Baum, Kenneth & Clauson, Annette L., 0. "Income And Asset Valuation Effects Of Food And Agricultural Policy - A Perspective On Data And Analysis," Increasing Understanding of Public Problems and Policies, Farm Foundation.
    7. Brandow, G.E., 1977. "PART III. Policy for Commerical Agriculture, 1945-71," AAEA Monographs, Agricultural and Applied Economics Association, number 337215, january.

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    1. Seagraves, J.A. & Williams, Fred E., 1981. "Returns To Investors In Flue-Cured Tobacco Allotments 1975-1980," Department of Economics and Business - Archive 259739, North Carolina State University, Department of Economics.
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