The United States Department of Agriculture-s Economic Research Service (ERS) reports that near2record harvests in 2008, coupled with improved farm product demand and high commodity prices, should result in increased spending on farm real estate and capital investment. Since 2000, holdings of these assets at the national level has more than doubled from $1.03 trillion to $2.16 trillion, and currently represent 92% of all farm assets. These figures indicate that farmland and capital are an important and rapidly expanding component of the agricultural economy.
Empirical evidence suggests that farmland and capital are quasi2fixed in that adjustment costs are incurred when holdings are altered. A paper by de Fontnouvelle and Lence (2002) states that transaction costs for buying/selling farmland are as high as 15% of the land price to cover brokerage fees, legal fees, appraisals, and surveys.( Research analyzing the quasi2fixity of capital is common in the agricultural production literature (e.g. Vasavada and Chambers, 1986; Oude Lansink and Stefanou, 1997; and Gardebroek and Oude Lansink, 2004), where examples of adjustment costs include lending fees, learning costs, building and environmental licensing fees, and the value of time spent preparing investments. As a fraction of investment expenditures for a sample of Dutch pig farms, Gardebroek and Oude Lansink (2004) find that adjustment costs for buildings and machinery are as high as 1.6% and 5.1%, respectively.