What is in this article?:
- Many urban centers initially grew among particularly fertile soils so farmland near these areas tends to be quite productive.
- Farms near urban areas have greater access to markets and ports and therefore lower transportation costs.
- As a result, these farms may generate economic profits above comparable lands further from the urban center.
Measuring agricultural value
While cropland values are higher in urban-influenced areas, the price premium is not necessarily driven by urban pressure alone. In order to better understand this price premium, an analysis was conducted to derive the portion of cropland value that was directly attributable to agricultural use. The value of agricultural use was calculated by capitalizing the value of expected returns to agricultural production. This was accomplished by dividing farmer-reported rent by a discount factor—in this case, the 10-year U.S. Treasury note interest rate. This provides an estimate of the agricultural value of farmland assuming that rents and interest rates remain at current levels. Next, these values were compared to farmer-reported land values by calculating the ratio of farmer-reported land values to capitalized rents. When the ratio equals 1.0, it suggests that survey respondents' estimate of market value is equal to the implied agricultural use value based on cash rent divided by the 10-year U.S. Treasury rate.
Figure 2 shows the changes in the ratio across the continental United States over the period 1999 – 2008 based on the JAS respondent locations. The whitespace indicates that no data were available or an insufficient sample size for disclosure. The highest values of the rate tend to be located in the Eastern United Stastes and near urban areas. Consistent with expectations, the map suggests that cropland values deviate from their agricultural use values near urban areas. The areas of greatest deviation are found throughout the Eastern United States, as well as Eastern Texas and parts of the Upper Midwest.