GENE LOGSDON: Firing The Landlord

 


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From GENE LOGSDON
The Contrary Farmer

That’s the term farm economists are using to describe the situation we are in right now when farm prices don’t justify the rental fees farmers are paying for corn and soybean land. The renting farmer says he can’t pay and if the landowner won’t agree to a lower fee, the farmer breaks the lease. He “fires the landlord.” What a joke. It’s always the renter who gets fired in the long run. Threatening to fire the landlord may bluff him or her into negotiating a lower fee, but landowners are paying more taxes on their land now and can usually find a less cash-strapped renter to agree to the higher rates. Sad to say but once again in this latest round of “market adjustment” the less endowed farmers who rent most of the land they farm are once again going to take a beating while the deeper pockets survive.

Crop and land prices do fluctuate over time, and so far have always gone up again. But if you get caught in the downdraft between the surges with too much borrowed money or, in this case, too much borrowed land, it’s bankruptcy all over again. It is such an old story and although we old dogs try to preach caution, our words go in one bank account and out another. Money may not be the root of all evil, but borrowed money is. Renting often seems safer because you can walk away from it easier than you can walk away from borrowed money, but nevertheless renting is a form of borrowing. And so often the renting farmer also has to borrow big for big machinery to farm his bigger acreage.

It is most interesting to watch who wins over the years with this kind of up and down farming. I like to study the old plat maps of my county. Remarkably, the big farms that survive today are owned by someone or some group connected by blood or marriage to the families who acquired it in the earliest days, often by government grant. These landowners rarely have to pay interest on borrowed money to keep on expanding, but use their profits to expand. Farmers who borrow their way into business have to use their profits to make interest payments. A few of them make it. Over the years, most do not. My father, borrowing his way along, often complained when I was growing up that he farmed just as well as farmers in the black but “the 6% profit a farm generally makes I pay right out in interest.” I saw it happen time after time. The guy farming on borrowed money sooner or later sold out to his neighbor farming exactly the same way but on inherited land.

This is the story of every farm recession since Columbus sailed the ocean blue, whether we are talking about the years when a big farm was 200 acres or today when a big farm is 20,000 acres. The farmers in the black from the beginning, who expand conservatively, using savings and only a little borrowed money if any, may not make the bigger bubble money during “good” times, but do just fine because they are not paying out interest and then can grow bigger using savings when land prices are lower in bad times. A successful large acreage farmer I know realized that he could make almost as much money renting his land out at the ridiculously high going rates as if farming it himself and that’s what he did with some of his land. Farmers, usually younger ones, are willing to gamble and pay high rent because that is the only way they can, hopefully, generate enough equity to buy land themselves.

I saw some statistics recently that startled me. In Pennsylvania, some 85% of the farmland is owned by non-farmers and that number is increasing. A little over half the landlords never ever farmed. I presume this is generally true of many other states but haven’t had time to check it out (National Agricultural Statistics Service). The non-farming landlords I know aren’t about to sell either. They know farmland is a very good investment for them. As more and more big corporations get into farming for the same reason, it means in my opinion that oligarchy is on the rise and democracy is waning.

Maybe the socialists are right. Land is a national treasure, not a commodity. But I can’t figure out a way to keep it from being a commodity. Can you?
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