Howard Doster always says that cash rents lag land prices. So when land prices go up, cash rents don't tend to go up by the same percentage increase as quickly. Likewise, when land prices come down, cash rents don't tend to come down as quickly.
From the sound of things in the country and reports from realtors, land prices held study in the last quarter of 2013 – they didn't come down. Mike Boehlje, a Purdue University ag economist, believes that will change. We could see land prices dropping up to 15% over the next three years, he says. Doster, now retired, was also a Purdue University ag economist.
Asked recently what he thought of two neighbors in his home state of Iowa who bid land this fall up to $15,000 per acre before one of them bought it, Boehlje simply shook his head. He believes 2013 will be known as the last year of what he calls excess profits on this up production cycle. You might pull out zero pure profit but still cover variable costs and have some left over in 2014. He worries more about 2015 and 2016. However, he's optimistic about agriculture – he's concerned about surviving the short term.
The only people who might have trouble covering even variable costs in 2014 are those who paid high prices for cash rent, Boehlje says. If you paid $500 per acre, and supposedly some people did, then at 170 bushel corn, you already have just over $3 per bushel in variable costs that you must recover before you ever go to the field and invest in seed, fertilizer, chemicals, field and repairs. Unless you're a very smart marketer, are raising specialty crops and have a locked-in price, or are just plain lucky, you're going to have a hard time covering variable costs, let alone all costs, with the 2014 crop and those kind of numbers, Boehlje believes.