What is your cropland worth? No, what is it really worth? If there were no farm program payments, such as Direct and Counter-cyclical payments, Marketing Loans, ACRE payments, and hunting leases, what would be the basic value of your farmland? You probably wish the tax assessor would calculate it that way.

Since farm program payments began 80 years ago, those additional dollars have made farmland a little more valuable every year. Economists say farm program payments have been “capitalized” into land values. Among them are Kansas State economists Terry Kastens and Kevin Dhuyvetter who have calculated how much land values would drop, were it not for farm program payments. Their research looked at values in 39 states and demonstrates how farm program payments have significant raised values of non-irrigated cropland.

The economists say if land was valued only as a farming input, its agricultural capitalization rate would be determined by dividing cash rent by the land value. They looked at rent to value ratios from 1951 to 1972 which was determined to be a time that land values were equal to what revenue would be generated from farming only. Those rates were then compared to today’s land values. Kastens and Dhuyvetter say, “It is not surprising that farmers in many states regularly note that they see little connection between farming returns and land values in their areas.” Within the Cornbelt, those values attributed to agriculture are:

Illinois 59%
Indiana 52%
Iowa 62%
Kansas 65%
Michigan 22%
Minnesota 56%
Missouri 52%
Nebraska 68%
North Dakota 67%
Ohio 46%
South Dakota 58%
Wisconsin 26%

That percentage of land values attributed to government payments varies from 18% in Kentucky to 100% in Texas. However the heavy hitters are all generally below the Mason-Dixon line. Across the Cornbelt those government contributions to land values range from 53% in North Dakota to 25% in Indiana. The heart of the Cornbelt is within a few percentage points of 30%.

If government payments were eliminated, how much would land values potentially fall? Kastens and Dhuyvetter say the Great Plains, from North Dakota to Texas would all see land values fall from 27% to 36%. Within the heart of the Cornbelt, the elimination of farm program payments would cut land values by 19% in Iowa, 15% in Illinois, and 13% in Indiana and Ohio. However, the economists say the drop would probably not be that drastic, and would be less than 10% throughout most of the Cornbelt, but the Great Plains would probably see drops from 13% to 18%.
The economists say their colleagues estimate that government payments are capitalized into land values anywhere from 25% to 75%, but certainly less than the 100% rate for Texas. They suggest that about 50% of land values are dependent upon government payments, or maybe less, given current commodity prices, production technologies, and farm consolidation.

Summary:
The value of land is composed of its productivity, both in crop production capacity and in the money that may come from government farm programs. The agricultural value of the land can be determined with comparison of the decade of the 1950’s and 1960’s when farm program payments were not likely to influence land values. Based on those ratios, the value of land in many Cornbelt states could fall if farm program payments were eliminated.