Monday, August 04, 2008

Death by entitlement...

The self-righteous sense of entitlement pervasive across much of grain farming is now clearly becoming the Achilles heel of many operators.  Not only do we expect to shielded from risk by government programs, we expect landowners to carry much of the burden as well.

As a business plan, this is becoming more problematic, even if it is the "right" way to do things.  Many of us have examined our profit levels and decided we can bid considerably more for land (both rent and purchase) and are stepping all over those who insist on yesterday's deals.

Consider this post by Marcia Taylor and read the outraged comments.
"Rents have dramatically lagged what they should have been. 2009 will be the catch-up year," Wise said. As Example A, Wise cited a 1,000-acre Bremer County, Iowa farm he and a partner bought with a clause promising the current tenant a $195 per acre lease on part of the property for 2008. Late last spring, a neighboring farm brought $422 per acre at a late cash rent auction. "How stupid do you think that makes a landlord feel?" he says.

On the property Westchester manages in Illinois, standard cash leases will start at $350 per acre in 2009, up from $250 to $290 levels today, added Westchester's Patrick Trainor. "Last year, people paid $340 cash rents on some Champaign, Ill., properties, and corn was only $4 then," Trainor observed. "This year, we could be negotiating when corn is $7."Otherwise, cash rent landlords are certainly demanding more money upfront than ever before. Some even came back for mid-year price adjustments, when prices rallied this spring. 
Pleading poverty and high fertilizer prices won't necessarily work, says Wise. "For every farm we rent, we have 35 applicants, and most of them can pay cash on the barrelhead." Got any better ideas? [More]
Last week I spoke to a gentleman whose brother farms his land near Lincoln for a whopping $145 and won't raise the rent. Knowing full well the family brouhaha that would erupt, his brother is simply cheating the owner IMHO in the name of "fairness to the operator" - a common practice, but hardly a long-term business survival plan.

I certainly support the right of renters to complain and have explained my point of view too often.  I have reached the point now where angry comments don't upset my much.  Those operators who hurl them likely will not be in the game in a few years.  Remember land  - and rental contracts - usually have to undergo some examination every generation, and those are the farms ripe for turnover.

My prediction was that we have just poured ethanol on the fires of competition. With the added transparency of cash rents, largely thanks to a complicated farm program (let the tenant do the LDP paperwork) and tax policy (no SE tax on schedule E income), this trend is here to stay, and nobody really gives a hoot whether you think it is "right" or "fair".

Besides, just think how much $3000 ground a $400 rent payment would pay off had you decided to avoid the rental grind just 4 years ago or so.  If owning land isn't your uppermost goal, perhaps you should revise your calculations.

Rental terms are not inscribed on the back of the Ten Commandments.  And the safest approach I have discovered is to devise ways to meet owner objectives first.  This is not harsh or unfair competition.  It appears to be good business conducted by grownups.


Ol James said...

hmmm....a steak dinner or Bar-B-Que or bush hogging a field here and there go a long way. I use about an acre for a family garden from my brother on his place. You would be surprised what you can do with a freezer of homemade Lemon Ice Cream. Being fair and neighborly can go a long way. Backwards..maybe, but it's a step in the right direction.

Anonymous said...

HOw can you have such a darwinian worldview and still be concerned about income inequality?

John Phipps said...


Gosh, you make "darwinian" sound like a bad thing. If the darwinian impulse is to persevere the genes into the future, allowing inequality to increase creates conditions for social breakdown that threatens even the apparent current "winners".

See also: French Revolution, Russia 1917