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Perspective: Can Land Be Too Expensive?

September 5, 2013
By: John Phipps, Farm Journal Columnist
 
 
John Phipps

As a long-forecast farmland price peak seems more possible, voices are warming up to begin a chorus of "I told you so." Never mind most of the same observers have been humming the tune for years; any decline in the price of farmland will be greeted with self-congratulatory shouts.

While entitled to this seeming moment of vindication, they nonetheless miss the big picture. As I have argued, the price of farmland is subject to more than conventional rules of economic analysis. Furthermore, for the right property, it is nearly impossible for a particular farmer to pay too much.

The first miscalculation many land agnostics make is failing to include the hidden value of the ability to own. A bitter dispute in India between politicians and economists will likely decide the path of economic development and the future well-being of hundreds of millions. One of the central issues is land ownership reform.

Witness the awkward and even tumultuous land reform results in Ukraine, South Africa—even China—and you get an idea of how America has benefited from citizens’ ability to own land with nearly unlimited rights.

These rights were not free, any more than freedom of speech or any other basic tenets of our political state. The cost is bundled into every acre. Ask a farmer in a nation without private ownership what he or she would pay, above the value of the land, just to own land "free and clear." Farmers recognize this cost instinctively, while accountants have no general rule to calculate it. Without hard data, economists simply ignore this value.

Recently, the rise of wide-ranging mega-renters has confronted farmers with a level of competition beyond previous community norms. The unwritten rules of right conduct among neighbors can’t apply to land competitors who live 200 miles away. They self-exclude from community approval. It’s hard to publicly "dis" someone who isn’t there.

In its wake, protection by shared community values has evaporated. To rebuild that defense, there is one foolproof tool: ownership. At the same time, new equipment and technology have added expanded premiums to adjacent land. We have assembled 600-acre fields that are a joy to work with wide machines, big horsepower and GPS guidance systems.

Priceless Acres. Additionally, we seldom account for the noninterchangeability of land. The acre in the middle of the home farm being sold by an uninterested cousin is not replaceable with an even better acre 10 miles away, regardless of price. You can’t compare apples to golden apples.

In the same way, opportunity cost is meaningless unless you are willing to swap assets as the market fluctuates. Farmers sell farmland because of farm failure, not because hedge funds are a better bet. You don’t deliberately sell your job security, either.

But the largest overlooked favor is our time horizon. This is likely a unique agricultural attribute. I have never heard anyone refer to himself as a "fifth-generation ag economist," so perhaps this oversight is to be expected. Through the decades, land cost becomes amortized to virtually zero. Land control, however, can become exponentially more valuable.

Regardless, you never see a spreadsheet "guesstimate" of these values. This is incomplete economic analysis because farmers realize those values in actual dollars, not to mention life satisfaction.

Did your ancestor pay too much for his acres? Who knows, or better yet, even cares? So it will be for our acres, I hope. Paying "too much" for land you farm is a fabricated failing determined by incomplete metrics to meet arbitrary, short-sighted standards. That we even debate it speaks more to our professional narcissism than financial utility.

John Phipps, a farmer from Chrisman, Ill., is the TV host of "U.S. Farm Report." Contact him at johnwphipps@gmail.com. For local station listings, log on to www.USFarmReport.com.

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FEATURED IN: Top Producer - September 2013

 
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