# Do property values capture producer choice in agriculture?

I am interested in conducting research into how climate change impacts the social welfare of a country, particularly how it affects producers of agricultural product. My immediate thought was that as the climate changes, certain crops will fare better under these new conditions and would generate a substitution effect towards these crops.

e.g. As temperatures rise, soybean becomes relatively more attractive than wheat in terms of yields and farmers would, over time, switch towards growing soybean so as to maximize rents.

After a discussion with a colleague, they suggested looking into property values of farms as these would encompass information about farmers' choices over time. I am not sure how to understand this connection formally. How would farmers switching crops be reflected in the property value of a farm?

Suppose that, initially, crop A is the most profitable crop that can be grown on a particular farm, yielding an average annual profit of \$X, profit being measured after deduction of all costs (including a normal return to the farmer) other than the cost of the property (ie the land). In a competitive property market, the capital value of the property might be expected to approximate to the discounted present value of a stream of \$X per year.
Now suppose that, due to climate change, the relative profitability of different crops changes, and that crop B becomes the most profitable crop, yielding an average annual profit of \$Y. This could represent either an increase or a decrease in profitability. The former is possible for a farm in a cool climate, where perhaps crop B was previously too unreliable, but with a higher average temperature becomes more profitable than crop A. The latter is possible for a farm in the tropics, where perhaps both crops used to be reliable but now crop A suffers from heat stress. In either case the capital value of the property might be expected to change to the discounted present value of a stream of \$Y per year.