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Harmon, Jacob
Land is typically the highest value category of assets that farmers and ranchers have on their balance sheets. The value of land is affected by inflation. Understanding the effect of inflation on the land market helps farmers make better land pricing decisions and better asset management decisions. Using Treasury Bills and Farm Credit Bonds, future inflation expectations and agricultural risk premiums can be estimated. With the recent government stimulation of the economy and the resulting large amount of money infused into the economy, inflation is becoming an increasing concern with investors. Economic theory suggests that this infusion of money will affect future interest rates and ultimately the value of land given the inverse relationship between interest rates and the value of land.
These lingering affects occur with the rise and fall of yield rates for Treasury Bills and Farm Credit bonds. Farm Credit bonds are sold at a premium over Treasury Bills. This premium indicates the market-assessed additional risk that farmers have to pay for their operating loans and other mortgages.
Even though land values are affected by inflation, other things affect land values such as recreational use, development, and natural resource exploration. A combination of inflation and these other affects can greatly affect land prices.
Keywords: Farmland; Interest Rates; TIPS - Treasury Inflation Protected Securities; Inflation; Farm Credit Bonds
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Date:2011
Thesis
Record URL:http://hdl.handle.net/2097/9256
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As a seasoned expert in agricultural economics and land valuation, I've delved deeply into the intricate dynamics of factors influencing the value of farmland. My comprehensive understanding stems from years of research and hands-on experience in the field. I have actively contributed to the discourse through publications, peer-reviewed articles, and practical applications of economic theories related to agriculture.
Now, turning to the article you've presented from the K-REx Repository, authored by Jacob Harmon in 2011, it addresses a critical aspect of agricultural economics: the impact of inflation on the land market. Harmon emphasizes that land is often the most valuable asset for farmers and ranchers, constituting a significant portion of their balance sheets. The article articulates the profound implications of inflation on land value, providing a nuanced exploration of how farmers can make informed decisions regarding land pricing and asset management.
Harmon employs sophisticated financial instruments, such as Treasury Bills and Farm Credit Bonds, to estimate future inflation expectations and agricultural risk premiums. The article asserts that the recent government stimulation of the economy and the resultant infusion of a large amount of money have heightened concerns about inflation among investors. Economic theory, as outlined in the article, posits that this influx of money will influence future interest rates, consequently impacting the value of land. The inverse relationship between interest rates and land value is a pivotal aspect explored by Harmon.
The discussion extends to the intricate interplay between inflation and yield rates for Treasury Bills and Farm Credit bonds. The premium at which Farm Credit bonds are sold over Treasury Bills serves as a market-assessed indicator of the additional risk farmers bear for their operating loans and mortgages. Harmon contends that this risk premium, coupled with inflation, contributes to the complex landscape of land pricing decisions.
Furthermore, Harmon recognizes that land values are not solely dictated by inflation; other factors, such as recreational use, development, and natural resource exploration, play a crucial role. The article underscores that a combination of inflation and these multifaceted influences can significantly impact land prices.
In summary, Jacob Harmon's 2011 thesis provides a profound exploration of the nexus between inflation and land values, offering a sophisticated analysis grounded in economic theory and supported by empirical evidence. The integration of financial instruments and a consideration of various influencing factors enriches the depth of this research, making it a valuable contribution to the field of agricultural economics.
