—Lancaster Armine, Saturday, March 11,1978
42
Land rent. What’s a fair price?
By JERRY WEBB
University of Delaware
How much should farmland rent for this year? That’s a
question on the minds of many landowners and land
renters. The owner who asks too much will have trouble
finding a tenant. On the other hand, if he doesn’t ask
enough he loses potential income.
These days it seems to be an owner’s market with plenty
of fanners available to bid for good cropland. The in
vestor or retired farmer can pick and choose among
renters and can get a rental sum that appears quite at
tractive.
So the risk of land renting seems to be on the tenant who
must pay a fairly high land charge, then meet all the other
expenses of putting in a crop with little assurance of yield
or price. He can easily spend a couple of hundred bucks an
acre, including rent. If he has a good year, he makes some
money. But if the Spring is too wet or the summer too dry,
he can lose his shirt. ,
A few years back there were a lot of sharecroppers
farmers who tilled the land on shares with the owners. It
used to be common practice for the tenant to provide
everything but the land and get two-thirds of the crop. If
he was a good fanner and the weather cooperated, both he
and the owner make out pretty well. In this situation, the
owner shared in the risk and the tenant didn’t have to
cough up hard money at the beginning of the crop year.
Gradually that custom changed to one where owner and
renter shared certain production costs like seed and
fertilizer and then split the harvest 50-50.
But the sharecropper arrangements are pretty much
gone in this part of the country. Owners want a guar
nateed income and renters seem to prefer that also.
The big question becomes how much rent is ap
propriate? And, of course, there are two ways to look at
the question. From the owner’s point of view, the rent
must be enough to yield some income on his investment
beyond taxes and a fair rate of interest on the money
invested or in the case of land that’s been in the family for
years, a fair return for the value represented.
The renter, on the other hand, can’t pay too much or he
loses money. He estimates crop yields and prices, sub
tracts estimated production expenses, figures how badly
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he needs the additional acres and comes up with a figure.
But then he has to compete with other farmers who may
want additional acres even more than he does. So they bid
up the price. Reports of land renting for $5O, $6O, even $BO
an acre are common. Land that rented for $25 an acre a
few years ago is snapped up at triple that amount.
Are landowners gouging renters? Not necessarily. You
see, depending on what an investor actually paid for that
* land, he may have to get $75 to pay his interest and taxes.
That leaves nothing to pay off the principle. So to make it
a worthwhile investment, he either needs to get even
more rent, or wait for rising land values to bail him out
when he decides to sell.
The real paradox in this mess is that, depending on the
productivity of the land, the renter may not be able to pay
that much rent and make any money. So what happens?
The renter pays a little more than he should to get the land
and hopes for good weather and,high yields; the owner
settles for enough to pay interest and taxes or maybe even
less and waits till he sells the land to get the big pay off.
What this situation means is simply this-farmland in
this area is overpriced for agricultural purposes. With
today’s commodity prices, a farmer can’t buy land and
pay for it with field crop income. An investor can’t buy it
and expect to pay it off with rent. And a renter can’t
continue to pay higher and higher rents just because land
prices keep going up. There comes a time when he must
back off-do a better job of farming the acreage he has and
not try to be the biggest operator around.
The economics of big farm machines require large
acreages. But that may not be every farmer’s answer.
When the rent payment takes all the profit, there’s no
point in large-scale fanning.
Where’s all this headed? To a system of controls that
will take prime farmland out of,the speculation market.
Farmers will sell development rights to their farms to the
government. That will lock their property into farm use
forever and will adjust selling prices and rents down to the
farm’s potential as an agricultural unit.
This is already happening in a few states. Many farmers
are supporting the idea as the only sensible way to keep
good farms in production and to stop the spread of non
farm development into the country. It also stops spiraling
rents that are beyond a farm’s ability to produce.
©Ol
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) have a
nice weekend...
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EVERY
WEDNESDAY IS
Wt W
AT NEW HOLLAND SALES STABLES, INC.
New Holland, PA
Dairy Farmers!!
• • • PLEASE TAKE NOTICE <• • •
New Holland Sales Stables, Inc. Dairy Sale will
begin at 12:00 noon every week starting March 15,
1978.
Sale will begin with heifers and stock bulls
followed by better quality fresh cows from all
consignors to be sold from to 2:30. Dairy Herd
Dispersals or Springing Cows will be sold following
fresh cows.
We hope this schedule will fit your own herd
management better.
If you need 1 cow or a truck load, we have from
100 to 200 cows to sell every week at your price
Mostly fresh and close springing Holstems.
Cows from local farmers and our regular
shippers including IVtervm Eshleman, Glenn Fite,
Kelly Bowser, Bill Lang, Blaine Hotter, Dale
Hostetler, H.D. Matz, and Jerry Miller.
SALE STARTS 12:00 SHARP
Also Every Wednesday, Hay, Straw &
Ear Corn Sale 12:00 Noon.
All Dairy Cows & Heifers must be
eligible for Pennsylvania Health Charts.
For arrangements for special sales or herd
dispersals at our barn or on your farm, contact
Abram Diffenbach, Mgr.
717-354-4341 -rfk
OR
Norman Kolb
717-397-5538 V v
)