Capitalization of Farm Program Benefits into Land Values

Robert D. Reinsel and Ronald D. Krenz

No 324159, Miscellaneous Publications from United States Department of Agriculture, Economic Research Service

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.

Keywords: Agricultural and Food Policy; Crop Production/Industries; Financial Economics; Land Economics/Use; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 33
Date: 1972
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:uersmp:324159

DOI: 10.22004/ag.econ.324159

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