Howard Doster isn't out to make friends. What he desperately wants to do is encourage farmers who rent land to sit down with their landlords and reevaluate their leases now, before someone else comes along from a different area, offering the landowner a cash rent deal that looks too good to pass up.
The retired Purdue University ag economist and now independent farm management coach is so convinced that landowners will be expecting what they feel is a more equitable share of a larger piece of pie, namely more net returns over variable costs for '07 and '08 crops, that unless current tenants step to the plate, there could be more leases lost this fall than at any time since the early seventies. That's a bold statement, but Doster turns to numbers to back it up.
He believes that the 'right' rent is roughly an equilibrium rent, driven by supply and demand. Unless input costs skyrocket more than expected or intended corn acreage balloons even further than anticipated, he sees what he calls contribution margin being even higher next year than in '07. And it's more than $130 dollars higher this year than it was in '06, he contends. He bases that calculation partly on Purdue '07 crop budgets, and partly on his own interpretation of yield trends and expected commodity prices when '07 and '08 crops are sold. He's calculating for farms using corn and soybean rotations, not just continuous corn, and when he computes budgets, he picks examples of farms that could produce Indiana's average corn yield- 156 bushels per acre, or soybeans at 49 bushels per acre.
By '08, he believes the contribution margin could be roughly $370 per acre. For '06, it was under $200. He describes contribution margin as what's left after direct costs are paid from a crop sale to cover the farmer's machinery, labor and management, and the owner's land.
Admittedly, cash rents were probably higher than could be justified based upon the budgets calculated by Purdue for '04 through '06, and especially in '06. But now the demand for corn fueled by ethanol fever has swung so widely that he believes rents based on his version of expected contribution margins this year and next year are too low.
That's why he feels someone will offer landowners more money unless current tenants sit down and negotiate with the owner in advance, Doster says. You can learn more about his views at: www.dhdoster.com.