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11 Feb 2012 - How High is too High?

I begin this week with a question. . . “How high is too high?” and I’m talking about the prices being paid for farm land and cash-rents as we go into the 2012 crop year. Last fall there was a lot of coffee shop talk about that farmland auction in Iowa that produced a $20,000,00 per acre sale. Well, Iowa is back in the news again. During the first week of February, a cash-rent auction of farm land was conducted over a three-day period, 3,300 acres in eight counties and the results once again made for some interesting coffe shop conversation.

The auction called for a two-year lease and the lowest price bid was $325 an acre in Franklin County. At the other end of the scale, the highest price was $530 paid for 211 acres in Mitchell County and for 4 lots in Hardin County, totaling 350 acres. That’s right, $530 an acre per year for a total of $1,060!

The comment I have heard most often from farmers goes like this . . “It will take a perfect weather crop-year to make that pay off, anything less than that and it’s a losing proposition.” So, will it pay off? Let’s look at some numbers from a January study conducted by the University of Illinois after private surveys indicated that U.S. farmers would plant the largest corn acreage since 1944 and cut back on soybean acres.

The study focused on corn farmers in central Illinois with average yields running 180-200 bushels per acre and projected corn farmers there could make a profit as high as $578.00 per acre, or on lower yield continuous- corn acres, a profit of $467.00 That is well above the $425.00 per acre they estimated for soybeans profit. The study assumed a corn price of $5.35 a bushel and a soybean price of $11.85 per bushel.

Based on those numbers, I would agree with those who say, not only is perfect weather a “must”, but the world corn market must continue to show strong demand and strong prices.

But for me, there are two questions that go beyond economics and I really would like to hear your opinion or actual experience if you have lost land in a rent-bidding war. Question #1 - What are these rent auctions doing to long-time tenant farmers and their relationship with landlords, are they being forced off the land they have farmed for years? Question #2 - What does this do to young farmers jusr getting a start and wanting to add more land to their operation; does it freeze them out of the land picture entirely?

You can share your thoughts and comments with me at orion@agbizweek.com. I really would like to hear from you.

My thoughts on Samuelson Sez.