Farmland value changes, grain storage, and livestock production in a geographically dispersed market

Martin Benirschka, Purdue University

Abstract

The focus of this dissertation is farmland value changes, grain storage, and livestock production in a geographically dispersed market, centered on the Corn Belt states: Illinois, Indiana, Iowa, Missouri, and Ohio. We hypothesized that changes in farmland values increase with distance to the market. Under quite general conditions percentage changes in producer prices, returns to land, and land values increase with distance. Thus, producers far from markets experience greater growth in land values than those close to markets if commodity prices increase. But they face greater declines in values when commodity prices decline. The empirical analysis supported this hypothesis. We hypothesized that grain storage increases with distance to markets. Since producer prices decline with distance to markets due to the increased cost of transport, the opportunity cost of holding commodity stocks declines with distance. Thus, producers far from markets can store commodities at a lower cost than close to markets. Empirical analysis indicated that on-farm and off-farm grain storage capacity increased with distance to markets. The location of storage facilities has implications for intertemporal price relationships of storable commodities. If grain storage takes place at some distance from the market, grain prices at the market grow at a rate smaller than the rate of interest. This is exactly what empirical studies of commodity prices find. We hypothesized that livestock production changes systematically with distance to markets. We showed that livestock production follows a systematic pattern that is determined by the efficiency of feed use. Livestock producers close to markets produce feed efficient species, while those far from the market produce feed inefficient ones. Empirical analysis showed that hog and cattle production increased with distance to markets. Thus, differences in feed grain prices due to distance are an important determinant of livestock production. We found that the relative importance of different kinds of livestock changed with distance. Roughage fed cattle were more important than hogs and grain fed cattle in areas close to markets. Grain fed cattle and hogs were more important than roughage fed cattle in areas far from markets. (Abstract shortened with permission of author.)

Degree

Ph.D.

Advisors

Binkley, Purdue University.

Subject Area

Agricultural economics

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