Evidence on the existence of speculative bubbles in farmland prices

We conduct tests for the contribution of speculative bubbles to farmland prices. These tests are carried out under the hypothesis that farmland investors rationally form expectations. The outcome of tests reported here allows us to infer whether farmland prices are determined by market fundamentals-discounted returns from the highest economic land use-or whether rumors about farmland price movements are self-fulfilling. The tests are stationarity and cointegration tests relating farmland prices to rents. The tests are carried out using data from three farm production regions-the Corn Belt, the Northern Plains, and the Lake States. In each region, we find little evidence to reject the hypothesis that market fundamentals determine farmland prices.