Saturday, August 01, 2009

My farm, my information...

The longer I farm, the more I begin to realize the information about how I farm is a valuable commodity in itself. Yet, for the most part, we all cheerfully provide these numbers and ideas to anyone who will listen.  Even more unusual, on the face of it, is how the government and even casual onlookers feel free to walk into my field at random and measure my crop.

Is this practice in our best interests?

Consider the cash rent survey laying on my desk.  This year for the first time county level cash rent information is easily available from NASS. I have grave doubts about how representative the number is, and also since it is voluntary, whether I should participate.

Some arguments for truthfully filling out the survey:
  • The reported averages will more closely reflect actual cash rents, allowing some analysis and comparison for both renters and landowners.
  • Variable rent formulas could be devised based on a "basis" ($50 over average) or percentage (125%).
  • If Since I am paying way above the average, in some cases I may be able to convince landowners rents should come down.
  • Farmers paying far below the market (to poorly informed owners, as a rule) would be vulnerable to simple revelation by competitors with less moral outrage.  It is public information, after all.
  • There is the appearance, at least, of a valid "comp", which is the basis for almost all value appraisals.  
  • We could tell (too late, of course) when rent trends were changing or accelerating.
The arguments to the contrary:
  • There is little assurance guys are reporting these numbers accurately.  In fact, I would bet real money the rents are shaded down, since who wants to see rents rise?  That could even be the best choice for my strategy.
  • The upside for high payers is to appear to be way over the market.  If they throw their (real) numbers in, the average will rise, lowering their apparent premium value provided.
  • Any formula based on these averages will likely become less workable as farmers work to game the system. While this could go both ways, there is a risk as reported rents approach reality (most likely rise as reporting improves), premium calculations become much more expensive, despite what actual economic conditions justify.
  • Although I can't quite offer hard math, I suspect one byproduct will be a ratchet mechanism that promotes rent increases almost automatically, and certainly much faster than occurs now as rent numbers leak out slowly.
  • The NASS number would be a huge help to farm managers and realtors.  Making their work easier is not my job.
  • NASS does not report the range and standard deviation to get some sense of what the data distribution looks like.  This would also allow all involved to judge the value of the average.
  • It is an unwarranted invasion of the privacy of a deal between a willing renter and owner.   
  • The enduring official idea of farmers as a homogeneous collection of test subjects also rankles me.  Cash rent numbers are skewed by things like family relationships, externalities not captured on the 1099-Misc such as tiling (which we do), and unique values farmers deliver for specific parcels.  The reported number does not capture the term payment schedule, for example.
  • Oddly the publication of this number could also hasten the switch to cash rent, as the appearance of "market information" would eliminate the difficult task of farm-by-farm negotiation, as well as offer a hard number for owners to compare to.
On the whole, I think this process presents greater risk than benefits to operators. Having NASS in charge of it hardly engenders confidence and assures untimeliness. Above all, information has value.  Giving it away makes no sense anymore - if it ever did.

It is likely I have not considered all the angles here.  What am I missing or thinking backwards?


Bill Harshaw said...

The "transparency" argument, I think. My impression of economic theory is that the more transparency the better markets work. As a competitor in a market, if you believe yourself to be more efficient than average, therefore a better competitor, you want the market to be ruthlessly efficient. If you believe yourself to be below average, not living in Lake Woebegone, then you want less efficiency and more niches caused by incomplete or inaccurate information.

I eagerly await correction by someone who actually knows something about economics.

buffalobill said...

Bill, I think that recent events nationally would indicate that No One actually knows something about economics...but I may just be being cynical.

John, my Dad was one to tell anyone anything they wanted to know. I always thought that it was important to find out just Why they wanted that knowledge before giving it to them. Maybe that is cynicism as well? Knowledge is power, and I think one should be careful in giving that power out to someone else.

From Virginia said...

The requirement for NASS to conduct the cash rent survey was put into the 2008 Farm Bill in an effort to provide better data on cash rents so that the CRP rental rates would more accurately reflect reality. Currently, those rental rates are set based on a very subjective land value survey done by the county committee, and are often skewed one way or the other.

John Phipps said...


Good one. The only caveat I would suggest is it's hard to attain transparency without true numbers, and I have no way to judge whether the averages are really close or not.


I remember this now you mention it. Regardless of the initial aim, though, I think this number will be used in the ag community as the only benchmark available for rent analysis.


Thank you for reinforcing my alarm at how cynical I too become at times. Being aware of our predilections may help us balance out judgments.

Anonymous said...

I will always subscribe to "if I told you that I would have to kill you".

Anonymous said...

I just did my part in helping the accuracy of this year's prospective planting report. I reported that on my corn belt farm, this year I plan to plant 100 acres of oats, 20 acres of milo, no corn, no soybeans, and I pay $25 per acre cash rent.