You Pay More for Food, Farmers Pay More For Land
|December 22, 2013||Posted by Staff under Economic Principles, High Cost of Land|
Agent to farmers: Budget now for 2014
“Bull markets in corn in 2011 and 2012 helped create a marked increase in land rent,” said Eric Barrett, Ohio State University extension agent.
Land rents are supposed to decrease along with decreases in corn prices, said David Marrison, extension agent. However, it’s unlikely that landowners are going to be willing to reduce rents.
“Once rates have increased, it’s difficult for them to go back,” he said. “It’s sort of like a business telling you in a bad year that they want to take back 20 percent of your salary.”
The typical rent for an acre went from $55 in 2012 to $76 in 2013.
Landowners are reading stories about rental rates going up on farmland all over the country, and they’re trying to get a better return on their investment. “It’s amazing how many calls we get about average land rents,” he said.
Many property owners try to estimate the yield on their property by counting the number of vehicles that leave the property during the harvest, Marrison said. Typical yield helps determine rent amounts.
Land values overall are increasing, so farmers pay more either to buy land. Real-estate debt for farmers also is increasing due in part to the low interest rates [enticing farmers to buy more before rates go up].
How to Calculate Grazing Land Values
Pasture land has been in short supply in recent years throughout the Midwest primarily due to record high grain prices and other commodity pressures. It appears the trend has peaked for corn and is headed back to a “new normal” trading range for grain. Pressure may still be on grazing lands in the short term as livestock producers looking to expand or find new grazing opportunities stay competitive in the market and bid pasture prices higher than national averages.
Over time, pasture values tend to follow cattle and corn prices. Following those prices and local land rent for cropping systems will help determine pasture prices in your region. The main focus when leasing pasture is for both parties to receive a fair value for the land resource and grazing opportunity.
For Midwest producers to prosper in the cow-calf or stocker business, they must have access to reasonably priced pasture lands from May-October. National pasture land prices are generally benchmarked from the Flint Hills area and Kansas State University does a nice job of laying out the prices paid for pasture based on rental surveys.
Mike O’Mara, Progress Report board member, notes: Ed. Notes: As the price of pasture land gradually rises, that makes it harder for farmers who’re buying or leasing. Meanwhile, land speculators, including some farmers, obtain revenue from selling or renting out their land, which they didn’t produce — that’s different from selling or renting buildings or other improvements.
The cost of farmland could be lower, and food prices could also be lower, if there was a limit on land speculation, by requiring that land speculators and other major land users paid land dues, based on the value of the location, not the improvements. Some of the land revenue could even be used as a equal dividend for citizens, somewhat similar to Alaska’s oil dividend.
That would also have the additional nice effect of being a second way of helping people to be able to afford food and other necessities, as well as having something extra to make life more comfortable. After all, no person made the land, so how can it make sense for a few people to live off of it without compensating others who don’t own any land?