A number of institutions, such as Federal Reserve Banks, Land Grant Universities, professional societies, and the USDA, conduct periodic surveys to gauge current and expected farmland market conditions. However, little is known about the process by which the varied market participants form opinions. In particular, few studies have investigated how respondents weigh past and current information or the degree to which respondents are backward-looking or forward-looking.
Using a panel of 400 respondents of the annual Iowa Land Value Survey between 2005 and 2015, we provide the first empirical tests of the degree to which various market participants, including farm managers, rural appraisers, and agricultural lenders, are consistent with adaptive or rational expectations. Specifically, we examine whether agricultural professional respondents adjust their land value estimates based on their historical track record - the differences between their responses and the published estimates, or they just give estimates based on sales records in current periods.
The analysis will provide important insights on the efficiency of farm real estate markets. In addition, this could examine whether and how the expectation formations process vary by different groups of respondents.