Retired Farm Manager Still Thinks Rents Should Go Up

Former Purdue ag economist promotes flexible leases.

Published on: May 23, 2008

Howard Doster wasn’t the most popular columnist in Indiana Prairie Farmer last fall, and isn’t always well received by everyone in the audience when he gives speeches. But that doesn’t faze Doster, a former Purdue University ag economist. Now retired, he and wife Barbara operate their own private farm management consulting business.

Doster has contended since last summer that cash rents were too low in many cases. His argument was that unless tenants renegotiated and let landowners share in part of the increase in crop prices, many would lose their leases for ’08. Reporting in recently to Indiana Prairie Farmer, Doster is still contending that many tenants and landowners should sit down and renegotiate leases for ’09.

Many farmers who thought they were already paying enough or too much cash rent have found his message a hard pill to swallow. Their point is that they were already tying up large amounts of financial capital in putting out the crop, even before inputs skyrocketed. But even after the big run-up in input costs, Doster still contends that unless tenants renegotiate, based on current corn and soybean prices, he believes that some will lose their leases for ’09 to other farmers who outbid them.

Doster bases many of his comments on what he calls the total contribution margin. When crop prices go up dramatically, the contribution margin, or amount of money cleared per acre over variable costs, also goes up by a large amount. Doster says that’s why landowners are entitled to a bigger share of the pie.

If farmers didn’t agree last summer, many certainly are more convinced that Doster is on the wrong track this spring. Fertilizer prices are double to triple a year ago for certain products, and insiders claim they will go higher yet. Fuel prices are much higher, even glyphosate herbicide increased a sizable amount. Seed prices are also up compared to a year ago, with companies touting biotechnology and traits, and claiming they need a good return to justify bringing these products to market. Rising steel prices, so hot that apparently quotes for steel are good only for 48 hours in some parts of the industry, are leading to higher machinery prices. Higher steel prices and changes in how major equipment companies make and market equipment are also leading to much longer lead times if a farmer wants to, or needs to, purchase a new piece of equipment, especially a combine, tractor or other big ticket item. Earlier reports from Case IH insiders indicated narrow-row planters were scarce this spring.

Doster’s comeback to the argument that input prices have skyrocketed is that tenants should ask landowners to consider flexible leases. These account for changes in crop prices, yield, and can even be set up to vary depending upon changes in input prices. In his brand of flexible lease, which he uses on the land he owns in Ohio, Doster says he takes more risk as a landowner, but if it’s a good year with good yields and high prices, he also stands to make more.

Doster has always been known for his ideas. Whether you agree with him or disagree, you will likely admit that he at least makes you think.