I just wrapped up a story that really was interesting to write. There were some land rent auctions around Iowa last weekend, some of them in the northern part of the state netting more than $500/acre on 2-year leases. Pretty amazing prices. Some say it sets a dangerous precedent, while others say it's a way for landlords to get rents that are more reflective of land values. Some say it helps "level the playing field" for land and others say it could make it even tougher for people like young and beginning farmers to get started with land.
So, what do you think? This story sure brings out a lot of strong opinion. Curious to hear what you all think about this issue!
Everyone is going to pay, no disagreement on that statement. You can post under Pinocchio for all I care, not realy relevant, was pure sarcasm for the most part to suddenly see so many defending the landlords, so to speak.....
I am not wishing any owner bad luck, and I will explain shortly.
What I do think is that those landlords AND farmers playing this game from here on, will learn a very valuable and expensive lesson. It is and will not be a sustainable way to farm. Farming is not a "business" where you buy goods, add 10%, and resell. It is a risky business of growing crops with Mother Nature as partner. She is not always the partner we like, but she is and will be the partner we have and need, no choices there. For any BTO to acquire land at this price, I am sure, is probably not a problem, since he can withstand the costs spreaded out over more acres.. However, when his other landlords starts to follow, pretty soon this BTO's 22% margins now shrink to 2% margins, or no margins....oops, he must not have thought about that. Spread this over a few landlords over a few counties, maybe States... and the chain reaction will cause great concern for AG as we know it. Poorly farmed, mined fields will only be one of the problems following this...and no, Im not wishing for it, but thats what will happen when the farmer suddenly realizes he doesn't have inputs for the second year.
Both parties should have been smarter than this.....
Most leases in our part of the country has always been crop share, mostly because we dont get to raise a crop every year, and it's a fair distribution of both yield and price. If all our dry land acres were cash lease programs, the CRP program wouldn't be big enough to accomodate all the empty farms.
We aprreciate the fact that we are able to make a living as farmers in this area, it is a way of life, not a job, and in fact a very Risky business. We share the good years as well as the bad years with our land owners, and yes, we do still visit around coffee in the kitchen, and Christmas cards IS still important.....
It's great to see you have good relationships with your land owners, I really think that is the key. I do have to disagree with poorly farmed, mined fields, though. Leases are drawn to put the renter at liability for doing this. If you say you can't get blood out of a turnip, then I hope your machinery is all gone or someone is in line for it before the one who got damaged by the poor farming and mining. Yes, that did used to happen, I know of two cases around this area, but that was several yrs. ago. In both cases, the operators paid for it, not only money wise, but reputation wise and neither are farming any longer. Good luck to you. Again, I hope someone will describe a BTO for me. How big is one?
“but I don't appreciate the "young guns" with all their toys puffing their chests out either, while they try to negotiate everything to their advantage.” Anonymous, can you please explain this? I myself am a young farmer. I am only 24 years old. Now normally I would go on the defense about this kind of statement or “attack”, as it could be viewed, against young and energetic farmers that are working their way up the food chain. However, I am going to give you the benefit of the doubt and just ask for you to clarify that statement. From your post I think I can safely assume that you are older in age, no disrespect. I would just like to understand why you chose that wording.
As for everyone else what is with the new “BTO” classification of larger operations. Are we now labeling large farms with a title so we can clearly identify the enemy? Yes, I have already fought this battle and I won’t bother wasting my time trying to defend larger farms. In my farming area I would be considered a “BTO” however there are also other farms that make me look very much like a STO. I don’t view them as the enemy. They are just another business in the business world trying to grow, just as everybody else in this field.
Rent in my area has dramatically risen as well. I have seen land prices go from cash rent of 37 to 150 overnight. Are we in a bubble? I would say yes and as a young farmer I see this as a major concern and have decided to attempt to coast through this time rather then hit the gas and play a role in running rates up to 150 across the board. Farmers and farmers alone are to blame. We as a business have finally had a few great years with positive margins. Our response to this is to eat away these margins through land prices. For these farmers sake I hope 6.00 corn is here to stay, if not that I (assuming I survive the bubble and the aftermath) will be able to run while everybody else is at a crawl.
Anonymous, just because some of us on here are young and are not entitled due to our age does not mean we are stupid either. However hard it can be to tell through typed words rather than speech, there is some humor on this site. My last statement is the young farmers may have no entitlement to farming but the aged and experienced are in the same boat as well. Nobody is entitled to farm.
Thanks for the reply. My phrases, "young guns", "shiny new pickups" and puffing their chests out come from a few landowners who have approached me. They, quite frankly, feel like they have been taken advantage off when they might get a 4% return on the value of their property if lucky and in most cases that's before property taxes. I have all flex leases with my landlords. That's well known and I will actually recommend a farm manager to some to lessen the odds they might think they are not getting a fair shake. I have to admit, I agree with them in some cases. Seeing a starting farmer driving a $50000 pickup and having new shiny equipment doesn't set right. I totally agree I'm not entitled to anything. The first time I saw the phrase BTO was on this site. I have no idea what qualifies as a BTO. I totally agree with you, I am not interested in $500/acre rent. Not at this point. It may become a reality we have to deal with. Around here $120-$150/acre rent has been around for yrs. and yrs. The late 80's after the farm crisis produced those figures. At this moment, I'm being labeled a land grabber myself by one young farmer since an owner rented me his land after the young fellow destroyed his CRP waterways, let weeds go, let tile outlets wash out, etc. He came to me, I didn't go to him. But that's the nature of the business. Your phrase farmers and farmers alone are to blame for the high cash rents is true. But didn't we all know that the high land prices and landowners finally getting caught up with the prices of inputs and the prices of grain and the profits being made the last few yrs. would lead to this? I don't consider anyone to be my enemy. Some of my landowners tell me who approaches them every year. All one can do is treat the ground right, keep it intact, and do everything you can to improve it as if it were your own. My main point is, I will stand up for the landowner, I am their employee, they deserve a fair shake and a fair portion of the profit. That's been my philosophy and will continue to be. $250-$300 rent here is very common and a flex option on top of that if there's a good crop and good prices. Some are getting 1/3 of the crop and demanding continuous corn. Add that up. Real quickly, 1/3 of 180bu = 60bu x $5 corn =$300/acre. Or 1/3 or 150 @ $6 = $300. Around here anything less is going to be an anomaly. Good luck, and I hope someone describes BTO for me.
Being a small farmer trying to grow in this crazy game farming and you being a large farmer, alot of times we have a difference of opinions. Not that they are wrong, just different. However, I will agree this time. Farmers finally got some margins and things really went wild. Since things are so wild, economics will rule with some kind of correction. I have no idea how bad it will be. It may be like the 80's, it may be just a little retacement. I too am trying to coast through and hopefully weather the storm. And yes, it has been slow on here for a while and it is good to see a heated discussion.
My biggest complain is when rents like this go unpaid. That has happened a lot around here and more times than not the landlord lets the guy off hook, or the guy goes broke only to come back the next year under a new name.
this is great finally something that gets everyones blood stirred its been so dull on this web site as of late .
amen, i needed some entertainment! lol
So first thing - let me be clear. I HATE renting ground. I refuse to do it for the most part - because renting ground is too much like "the real world." - When I say real world, I mean the exact thing that is happening in the global economy - jobs move overseas or to other states, sometimes they move back, sometimes they do not - all because the companies are getting a better deal....... The farming world really has not had this happen, but that's just how business works (and it is coming to the farming world). Take a good look at your mom and pop stores in your local town. Walmart is doing the same thing these farmers bidding high cash rent prices are doing - attempting to drive their competitors out of business...
The landlord is (and should be) looking for the best deal. Now what does "best" mean - that's where the real conversation begins. Best - per engineering terminology (because I'm an engineer) - means the design/product/system that meets the needs required at the optimum cost. Now - to put that in plain english - it means the landowner needs to get someone who will give them the highest price - but will also take care of the land. Each situation is different, but often, these two values are inversely related (higher price, less care vs. lower price, more care). This is not always the case, however, and it is up to the Landlord to ensure he chooses the "best" solution (through a good contract).
However, I agree Farmers are directly responsible for the high prices. They are the ones bidding them.
As a young farmer I want no part of this. Does that mean I can't compete with them and pay high rents and cut margins close? Heck no - I can push a pencil, or an excel spreadsheet better than anyone - I made my own farm software, and I'll stack it against Farmworks or anything else out there. However, I rent only the ground that comes to me. I take good care of it. I give my landlords extra money when we have a good year - even on cash leases. Do I do that because I have to? No - we have a contract. I do it because I can, and because that increases the relationship. I make no attempt to go and rent other ground, and respectfully told a landlord last year when he wanted to put some ground up for a rent auction to "go ahead" and do that, because it seemed the best plan for what he wanted to do - which was get the most money out of it regardless of care (he chose not to, and I still rent his ground).
Bottom line - everyone's responsible.
The other Bottom line - and the one that's important to me - I'd rather pay $500 towards buying a piece of ground than pay $500 towards renting it! :)
GOOD point! Who would pay 500 acre rent when you could pretty much pay that same or possibly less for your own ownership. But I guess thats why land prices are going up on the purchasing side too. I have gotten to the point of realization that young/begining farmers have a slim chance entering the conventional agricultural industry. Thats why I am currently transitioning to organic grains. Simply trying to grow more of a niche product that bring possible higher revenues per acre is the only way I feel beginning small farmers are going to be able to enter agriculture.
So I did a quick figure last night..... a $500/acre cash rent is the equivalent of paying a loan (current 15 yr fixed interest rate at Farm Credit Services of Mid America of 4.15%) of $500 per acre on $5,583.33/acre ground......
That is - if you financed 100% (and had the collateral to do so) - you could buy ground for almost $5,600 per acre and have the same $500/acre payment per year.
So option A) buy ground for $5,600/acre - make $500/acre/year payments on something you will OWN, or option B) make $500/acre/year rent payments on something that will either go higher (or lower - maybe) in 2 years when your lease runs out - or may not be your's to farm at all - should you get outbid.......
Now one small * to all this - you have to FIND ground for sale for $5,600 per acre, which I suspect in the part of Iowa where the ground rent is $500/acre, is not an option.