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Perspective: Stand and Deliver, but Be Prepared

April 4, 2012
By: John Phipps, Farm Journal Columnist

There are some situations where all options are unattractive. We have all faced them. From the ancient highwayman’s demand to "stand and deliver" to the playground bully, many of these times require us to be willing to fight to maintain our status quo.

This is now the all too familiar pattern created by the increasingly transparent land rental market. While the analogies above are based on coercion, not competition, our brains react to both situations with the same emotion: the challenger is a bully in our eyes.

This comparison is manifestly inaccurate, of course, but it is the only way our primitive instincts have of preparing us to respond. The classic choices, fight or flight, are really not all that far from the options a cash-rent battle presents.

We can stand toe-to-toe and bid, and endure the concomitant risk. Or we can fold and (usually) complain about the inequity. Regardless, we continue to evade the stark reality of events.

Tenure on rented land is our scarcest asset. It is also a seller’s market. Period. With limited supply and absolute power to choose, landowners have all the leverage and can anoint a tenant for

whatever reason they choose. Community and cultural influences, such as renting to neighbors as a rule, have lost traction. Compared to market and weather risk, land tenure is a greater order

of magnitude, in my view. Weather and prices are continuous and thus offer recovery opportunities. A phone call from a landowner is a one-off event that alters your farming operation permanently.

Despite—or perhaps because of—this brutally difficult challenge, few of us prepare. In our hearts we know there are few degrees of freedom, but we continue to theorize about negotiation schemes, public relations strategies or seemingly divine intervention that will enable us to avoid conflict. We don’t relish direct confrontation.

Indeed, our industry could be "selecting" aggressive farmers, just as a harsh environment selects the toughest weeds. The process has been enhanced by rising prices, which have covered even outlandishly aggressive bets—at least so far.

Mostly we hunker down and hope it doesn’t happen to us. But with generational change driving most land transfers, respites seldom last longer than two decades.

Law of Survival. When cash-rent prices spread like Hollywood gossip on the Internet, the race to the top is on for every acre everywhere. Once this is accepted, a clearer understanding of land ownership emerges.

The widely unrecognized asset bought at a land sale is the right to name the tenant. After one episode of blind, sealed rent bidding on the core of your farm operation, you may allocate a more accurate portion of the price to that column. Sure, the dirt may be worth only $8,000, but the right to control it in perpetuity has great value as well.

It is imperative to decide which acres to risk much for. If you cannot defend all, at least compute the maximum loss that is survivable. Then you have a line in the sand, a crucial psychological benchmark.

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