Hysteresis and the Value of Farmland: A Real‐Options Approach to Farmland Valuation

Turvey, Calum G.; Moss, Charles B.; Schmitz, Andrew

doi:10.1002/9780470384992.ch10

Cited by 9 publications

(5 citation statements)

References 47 publications

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“…Using both national-level and individual state-level data, de Fontnouvelle and Lence (2002) find that US farmland prices are consistent with the present value capitalization model if transaction costs of transferring farmland are accounted for. Turvey (2003) uses an options approach to examine the discrepancy between observed farmland values and predictions from the conventional land capitalization model. Turvey finds that there is a real option on Ontario farmland, and that the option value increases fundamental farmland values by approximately 29% between 1971 and 1998.…”

Section: A Model Of Farmland Prices: the Capitalization Modelmentioning

confidence: 99%

“…Turvey (2003) uses an options approach to examine the discrepancy between observed farmland values and predictions from the conventional land capitalization model. Turvey finds that there is a real option on Ontario farmland, and that the option value increases fundamental farmland values by approximately 29% between 1971 and 1998.…”

Section: A Model Of Farmland Prices: the Capitalization Modelmentioning

confidence: 99%

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A survey of literature examining farmland prices: A Canadian focus

Deaton

Lawley

2022

Canadian J Agri Economics

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This study assesses agricultural economics literature on farmland prices and key determinants of these prices. The first section of the paper uses a basic capitalization model to organize a review of the literature and data. We then provide a focused assessment of five streams of literature examining farmland prices: (1) boom‐bust; (2) the capitalization effect of government agricultural subsidies on farmland prices; (3) agricultural zoning; (4) climate change; and (5) prohibitions against non‐local buyers of farmland. Our review highlights challenges to ongoing efforts to model changing farmland prices, the modern emphasis on econometric identification, important variation in the magnitude of estimated relationships across the literature, and the opportunity to expand research in Canada.

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Section: A Model Of Farmland Prices: the Capitalization Modelmentioning

confidence: 99%

Section: A Model Of Farmland Prices: the Capitalization Modelmentioning

confidence: 99%

A survey of literature examining farmland prices: A Canadian focus

Deaton

Lawley

2022

Canadian J Agri Economics

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“…Thus, we expect higher liquidity in land markets where the share of non-agricultural investors is large. Turvey (2003) provides an important contribution to the understanding of potential buyers' and potential sellers' reservation prices for agricultural land. He employs a real options framework to explain the reluctance to buy or sell land.…”

Section: Determinants Of Liquiditymentioning

confidence: 99%

“…Adelaja et al (2010) and Turvey (2003) provide an important contribution to the understanding of potential buyers’ and potential sellers’ reservation prices for agricultural land. Adelaja et al (2010) introduce the concept of “land hoarding,” which implies that farmers hold land in response to higher land prices.…”

Section: Measuring and Modelling Market Liquiditymentioning

confidence: 99%

“…Adelaja et al (2010) introduce the concept of “land hoarding,” which implies that farmers hold land in response to higher land prices. Turvey (2003) uses a real options framework to explain the reluctance to buy or sell land. In light of the uncertainty about future returns from land, sellers (buyers) require a lower (higher) rent-price ratio before they optimally decide to sell (buy) land.…”

Section: Measuring and Modelling Market Liquiditymentioning

confidence: 99%

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Measuring liquidity in agricultural land markets

Kionka

Odening

Plogmann

et al. 2021

AFR

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PurposeLiquidity is an important aspect of market efficiency. The purpose of this paper is threefold: first, this paper aims to discuss indicators that provide information about liquidity in agricultural land markets. Second, this paper aims to reflect on determinants of market liquidity and analyze the relationship with land prices. Third, this paper aims to conduct an empirical analysis for Germany that illustrates these concepts and allows hypothesis testing.Design/methodology/approachThis study reviews liquidity dimensions and measurement in financial markets and derives indicators applicable to farmland markets. In an empirical analysis, this study exhibits the spatial and temporal variability of land market liquidity in Lower Saxony, a German federal state with the highest agricultural production value. This study uses a rich dataset that includes 72,547 sale transactions of arable land between 1990 and 2018. The research focuses on volume-based (number of transactions, volume and turnover) and time-based (trading frequency and durations) measures. A panel vector autoregression and Granger causality tests are applied to investigate the relation between land turnover and land prices.FindingsThe paper confirms the thinness of farmland markets but also reveals regional and temporal heterogeneity of land market liquidity. This study finds that the relation between market liquidity and prices is ambiguous. This study concludes that a high demand from expanding farms absorbs supply shocks regardless of the current price level in agricultural land markets.Originality/valueEven though the relevance of agricultural land markets’ thinness is widely acknowledged in the literature, this paper is one of the first attempts to measure liquidity in agricultural land markets and to explain its relationship with land prices.

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The impact of price floors on farmland investments: a real options based experimental analysis

2013

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Price floors are a common instrument for market intervention to stimulate investments. In some cases, it can be observed that a price floor does not have the stimulating effect. We experimentally analyse the investment behaviour of students who take the role of farmers. The experiment considers an investment problem under uncertainty in a 'with price floor' and a 'no price floor' treatment, stylizing a decision to take an ongoing farmland investment option. We compare the actual investment behaviour with normative benchmarks of the net present value and the real options approach. Furthermore, we look at order and learning effects. The results show that the price floor has no significant impact on the willingness to invest, whereas the effects of order were statistically significant. The investment reluctance arising from an abolishment is stronger than the investment stimulation arising from the introduction of a price floor. Furthermore, neither the net present value nor the real options approach is appropriate to predict the investment behaviour in general. Nevertheless, the predictions of the real options approach enable an approximation of the participants' investment behaviour if the individuals have an adequate chance to learn from personal experience.

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Hysteresis and the Value of Farmland: A Real‐Options Approach to Farmland Valuation

Cited by 9 publications

References 47 publications

A survey of literature examining farmland prices: A Canadian focus

A survey of literature examining farmland prices: A Canadian focus

Measuring liquidity in agricultural land markets

The impact of price floors on farmland investments: a real options based experimental analysis

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