Market value of ranches and grazing permits in New Mexico, 1996 to 2010

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The Market Value of Ranches and Grazing
Permits in New Mexico, 1996 to 2010
Research Report 779
L. Allen Torell, Brent Dixon, Dan McCullom1
Agricultural Experiment Station • College of Agricultural, Consumer and Environmental Sciences
Table Of Contents
Introduction...................................................................1
Hedonic Pricing Models.................................................1
Ranchland Hedonic Models and Motives for
Ranch Purchase.....................................................2
New Mexico Hedonic Ranch Models.............................2
Recent Trends in Agricultural Land Values.....................4
Methods.........................................................................5
Hedonic Model Estimation............................................7
Results..........................................................................12
Ranch Sale Statistics.....................................................12
Annual Ranch Income..................................................12
Hedonic Model Parameter Estimates............................14
Trends in Ranchland Values.........................................17
Deeded Land Ranch In Colfax County........................17
Marginal Value Changes......................................19
BLM Permit Ranch In Hidalgo County.......................19
Marginal Value Changes......................................19
USFS Permit Ranch In Lincoln County.......................21
Trends In Permit Value.................................................23
Discussion....................................................................23
Acknowledgments........................................................24
Literature Cited............................................................24
List of Tables................................................................26
List of Figures...............................................................26
Appendix A: Estimation Issues For Hedonic
Ranch Value Models............................................27
Defining the Dependent Variable.................................27
Non-Negativity Restriction..........................................27
Spatial Autocorrelation.................................................27
Improving Future Hedonic Ranch
Valuation Models................................................28
Appendix B: Using Ranval2010...................................29
INTRODUCTION
The objectives of this study were to describe recent trends in the market value of New Mexico ranches and grazing permits and to explore the key factors that influ­ence the value of New Mexico ranches using a hedonic pricing model. The study updates a long history of New Mexico ranch value studies. These earlier studies provided hedonic models that could be used to estimate the value of particular ranches of interest (Torell et al., 2000; Torell et al., 2003), and this study updates the RANVAL model (Torell, 2011). The hedonic regression models were estimated from statistical analyses of ranch sales data provided by Farm Credit Services (FCS) of New Mexico. The model was used to estimate the trend in value for ranches in different areas of the state and with differing amounts of leased public and state trust land included. We first review the history of ranch value studies done in New Mexico and in other states and review what is known about the changing motives for ranch purchase. The data and hedonic models for this most recent analysis are then described.
HEDONIC PRICING MODELS
Hedonic models use regression analysis to decompose the price of an item into separate components that de­termine price (Taylor, 2003). The real estate market is a common example of an application of a hedonic pricing model. In this application, the hedonic property model begins with a consumer who derives satisfaction from real estate ownership and from other goods (Taylor, 2003). Grazing lands and other business properties also have future income earning potential that creates pur­chase incentive. Thus, the willingness to pay for a real estate property is determined by income earning poten­tial, development potential, and amenity characteristics. A sample of real estate transactions is gathered, and regression analysis is used to relate selling price to the key characteristics believed to influence price. Appraisal
1Respectively, Professor, Department of Agricultural Economics and Agricultural Business, New Mexico State University; Graduate Research Assistant, Department of Agricultural Economics and Agricultural Business, NMSU; and Economist, U.S. Forest Service Rocky Mountain Research Station