The farmer who contacted us by e-mail recently saw the second of two opinion pieces written by Howard Doster, one in the August and one in the September issue of Indiana Prairie Farmer. Those articles are accessible here, under the magazine section, in the Opinion section of those issues. Needless to say, he didn't agree with Doster's opinion about how tenants and landowners should approach the '08 crops season.
Doster, a former Purdue University ag economist, now retired, operates an independent farm managing consulting firm. He was instrumental in starting Purdue's Top- Farmer Crop Workshops, now 40 years running, and in facilitating several farm management tours held in the '90s. He was also the ag economist preaching perhaps the loudest that farmers should be aggressive in renting and buying land in the late '70s.
Nevertheless, this message this summer and fall for his clients and others who will listen is that farmers need to sit down with their current landowners and discuss what's the right rent- what's equitable under what he sees as a new agriculture with higher prices than existed just two years ago.
Doster acknowledges that input costs are up, but contribution margins were up strongly at mid-summer compared to '06 budget years. The projected margin for '08 was even higher. He defines contribution margin as what's left after a farmer pays direct expenses. It does not include depreciation, labor or land charges. Also admittedly, prices fell back some after he wrote his September column. Contribution margins, especially for '07, are still higher than '06, but not as much higher as they were in mid-July. Of course with weather changes, such as flooding and more drought that's already happened, depending upon the final crop impact once both the dust and mud clear, those crop prices and contribution margins could go up again.
His drift, of course, was that most farmers probably weren't paying enough cash rent, or at least wouldn't be paying enough if adjustments weren't made for '08. Obviously, our farmer friend had the computer keys on his keyboard flying, and ended by saying 'I hope my landlords don't see his articles." He was kind enough to note that the articles carried disclaimers saying that this was an article in the opinion section, and it was the opinion of the author, Doster, and did not necessarily reflect the views of Indiana Prairie Farmer.
In an ideal world, our view is that there would be all flexible leases, where both parties share in income and price risk. Doster has developed some of those leases, and even uses various versions on land he and his family owns in Ohio. He may comment on them in upcoming issues.
So why print the opinion pieces in the first place? Because it's not a perfect world. Doster included a dire prediction in the second article- he feared that unless farmers and current landowners talked to each other soon, there could be the biggest turnover of rented land since the early '70s. There may be others thinking it, but Doster, in trademark form, is bold about thinking out loud, and puts his concerns and views out there for everyone to see.
Our intent in publishing his opinions was certainly not to incite cash rent wars- far from it. But consider it from this side of the desk. What if he's right? What if this is the beginning of a real paradigm shift in agriculture to higher prices, driven by demand, which could perhaps justify higher returns to all parties, both tenants and landowners? What if farmers willing to take more risk and who don't mind traveling longer distances start knocking on your current landowners door before you do?
Have you penciled out budgets for next year? Can you show him how much more seed will cost? Do you have information on possible increases in other input prices, especially nitrogen? And do you have a handle on realistic commodity prices?
There are options besides just paying more rent. Flexible leases are one. Offering to provide extra services on the farm are another.
In the final analysis, the real tragedy in our opinion would have been to sit idly by, not printing the opinion pieces, only to find out Doster was right, and that many current landowners shifted tenants, maybe even without asking the current tenant to negotiate. Someone needed to at least lay the possibility out there for you, to spur your thinking. Doster was willing to say it, so we were willing to give him the space.
If you would like to rebut his argument and make a case for why rents are as high as they need to be, we will be happy to consider your prose for print as well, either here on the Web, in print, or both. Send us an email or drop us a line. Email at [email protected]. Or P.O. Box 247, Franklin, IN 46131, phone 317-738-0565.
Unsigned letters and e-mails without names go to the bottom of the stack. We don't mind venting, as long as it's done properly. And we're much more interested in constructive opinions and suggestions to help others move forward, so that everyone profits.