In sum, farmland values are higher near urban areas. Urban influence is associated with land values being "bid up" by competing land use activities, including residential and commercial development. The June Area Survey data support this notion as cropland values are shown to be higher in urban-influenced areas with an expected premium at the median of about $2,000 per acre. The pattern of influence, however, has not changed substantially at a national level in recent years, even given the significant volatility in the residential land market. Price impacts are shown to vary by metropolitan area, however, altering both the value of lands and the pattern of land use activities.

The natural question then arises, "What is the likely impact of urban influence in future years?" The ratio of cropland values to capitalized rents, which measures the influence of nonagricultural factors, can change in at least two ways. First, the agricultural value of land may increase as the result of rising commodity prices. Second, a further decline in the housing market may reduce urban development. Deferred futures contracts suggest that commodity prices are expected to remain high, and USDA farm income forecasts suggest increasing returns to agricultural production. In addition, recently released Case-Shiller Home Price Indices suggest a continued decline in housing values.

This study suggests urban influence has exhibited little variation nationally over the preceding decade. The difference between median values for rural and urban-influenced acreage remained relatively consistent both ahead of the housing price bubble and after its burst. Therefore, if recent strong commodity prices and farm earnings continue in the agricultural sector, it is unlikely that changes in U.S. farmland values in the future will be a direct result of urban influence. The distribution of commodity production and differential housing market outcomes, however, will contribute to varied outcomes across major metropolitan areas.

For more information

Barnard, C.H. (2000). "Urbanization Affects a Large Share of Farmland." Agriculture and the Rural Economy, 10 (2): 57–63.

Blank, S.C. (2007). "Farmland Values as an Indicator of Regional Economic Performance?" Agricultural and Resource Economics Update, University of California.

Irwin, E.G. and N.E. Bockstael. (2007). "The Evolution of Urban Sprawl: Evidence of Spatial Heterogeneity and Increasing Land Fragmentation." Proceedings of the National Academy of Sciences, 104 (52): 20,672–20,677.

United States Department of Agriculture National Agricultural Statistics Service. (1999-2010). June Area Survey. Available online: http://www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/June_Area/index.asp

United States Department of the Interior.(2006-2010). National Land Cover Database. Available online: http://www.mrlc.gov/

United States Department of Agriculture, Economic Research Service. (2005). Population Interaction Zones for Agriculture. Available online:http://www.ers.usda.gov/data/populationinteractionzones/discussion.htm

Standard & Poor's Case-Shiller Home Price Indices. (2011). Available online: http://www.standardandpoors.com/indices/sp-case-shiller-home-price-indices/en/us/?indexId=spusa-cashpidff--p-us----