RISING FARMLAND VALUES: SOME IMPLICATIONS FOR RURAL AMERICA

        Farmland values play a crucial role in the financial condition of U.S. farmers, with rising land values in recent years helping to stabilize farm balance sheets amid a depressed agricultural economy. As the largest asset on farm balance sheets and the biggest source of farm debt, land values have implications for both farmers and rural communities.

        Nancy Novack, associate economist at the Center for the Study of Rural America, examines the issue of farmland values in April’s edition of The Main Street Economist. The Main Street is published by the Center, which is based at the Federal Reserve Bank of Kansas City.

        Novack writes that across the nation, farmland values stayed strong in 2002 for several reasons including government payments that boost farm income, low interest rates that reduce borrowing costs for land purchasers and the increased demand for land that can be used for recreational purposes or for new development.

        Despite the recent strength in farmland values, the author notes several risk factors to land values including potential changes to government farm policy, fluctuations in farm income and the expectation that borrowing costs for land purchases will eventually rise.

        For rural areas, the impact of rising farmland values has been mixed, Novack finds. Although higher land values create equity for land owners and generate significant property tax revenue for local municipalities, high land values also drive up production costs, make it more difficult for farm buyers to purchase land with farm earnings alone and can create a hurdle for new farmers looking to enter the business.

        Novack’s article and past editions of The Main Street Economist are available on the Bank’s Web site at www.kansascityfed.org.