The first theme addressed in this paper is agricultural asset performance. The low rate of return on agricultural assets has been of particular interest to policy makers. From a market portfolio perspective, several studies have analyzed the relationship between farm asset returns and systematic market factors, concluding that farmland adds little systematic risk to a well-diversified portfolio. Because asset values adjust so that the return to each asset is in equilibrium with its relative risk, any persistent low return on agricultural assets may be due to differences in relative risk. The paper’s second theme is the valuation of farmland in the United States. Numerous studies have examined the factors affecting farmland values. Most have used the standard present value capitalization formula relating land values to land rents, although these models have been rejected by empirical data. Several studies have reformulated and improved the performance of the present value models. Since changes in rates of return of agricultural assets and land values can have drastic consequences for farmers’ wealth and sector solvency, future research needs in this area will continue.
Asset performance, Farmland valuation, Government subsidies
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