usda cropland rent drought 2012 plains

Not Chicken 'n' Egg Nor Vice Versa

Crop, Livestock Price Increases Drive Up Rent Costs

The human brain somehow keeps forgetting -- or never initially understood -- some basic economic truths. This 2012 article is from radio KBIA, Spt 25.

By Jacob McCleland

It cost more to rent an acre of cropland or pasture land in 2012, according to new figures from the USDA.

The average cost to rent an acre of cropland in Missouri went up by 4 percent. Pastureland increased by 10 percent.

Ron Plain is an agricultural economics professor at the University of Missouri. He says rental rates and a land’s market value are both tied to the value of what is being produced on that land.

“If crop prices go up or if cattle prices go up, the value of what you produce on an acre of land goes up and therefore people are willing to pay more to rent land or, if the owner of the land is willing to sell it, they’re willing to pay more on a market price to sell it," Plain says.

The average acre of Missouri cropland rents for $110. The average pasture rent in $28.

Pasture land rent value is increasing because less of it is available, Plain says, as each year more pasture is converted to cropland.

To read more

JJS: Long ago David Ricardo showed that how much one could make on a parcel of land is what determines the price of land, not the other way around; conversely, that cost for land is not what determines the price of the products from the land.

This fact matters because it shows how land -- that is, the landowner -- can and does swallow up monetary gains to be made from whatever factor. If demand for cattle goes up, or supply down, or if science can make fat healthy, or if government rules that fat is already healthy regardless, no matter what drives up the price of cows, land -- or more precisely the landowner -- can and does raise what they charge for the land and capture much of the gain in price of products.

To recover that value for the public, government need not own land but can instead levy a tax on land or institute land dues or charge a land-use fee.

Whatever the method that ends up being used, it allows government to get rid of the taxes on private efforts, taxes that shrivel the output of goods and services.

And if government redirects a society’s spending for all natural resources -- not just rurual land but urban, too, not just surface land but subsurface resources like oil and iron, too, and not just subsurface but supra-surface, too, like the airwaves -- from private pockets to the public treasury, then our common kitty would be so stuffed it’d become entirely feasible to pay the citizenry a dividend, a la Alaska’s oil dividend.

Then, as the rent for land were to rise -- for whatever reason -- so would one’s dividend. So average-cost land would be remain forever affordable.

If you'd like to know more about land prices, business cycles, and markets next year and beyond, you might try to make an upcoming talk with Phil Anderson. You can connect with Phil on Facebook, Twitter, and Youtube and keep up to date via his blog at Economic Indicator Services.

Also see:

Ethanol -- Burning Food to Go Where?

Good Enough for Profit, Good Enough for Populace?

After Zimbabwe Took over Land, a Payoff?

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