With record high prices being set daily for farmland, and reports from the news media about the riches in agriculture because of high commodity prices, pressure is mounting on family members operating farms. A case in point was a situation at a recent seminar in the upper Midwest. The parents were being pressured by their off-farm children over the Thanksgiving table to raise the rent on the two family members operating the family farm. In this case, they felt that $300/acre was low given commodity prices reported on the Chicago Board of Trade.
This situation is being played out in many regions of the country, potentially breaking up family relationships. The off-farm siblings have it all wrong, focusing on the prices received. This superficial analysis fails to examine the input costs and all the risk and volatility in today's agriculture.
Many producers are commenting that margins are being squeezed and are even negative, given some input price scenarios. However, the off-farm siblings only see land values and cash rents increasing. They fail to realize that until land is sold and positive margins are generated, there are much higher stakes being played in an agricultural world full of uncertainties that requires peak performing managers.
To all parents reading this article, be careful of the pressures being exerted by your children who are not involved in the farm. The risk and higher stakes in the form of input costs, paper increases in land values and record high commodity prices could quickly turn negative if global economic conditions change.
As a tip for those children on the farm, be ready to show how much high input costs and variation in prices have impacted farm and ranch economics in recent years. Illustrate how quickly profits can turn negative, resulting in loss of equity in an unprofitable year.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected]