Supply and Demand does affect farmland rental rates.
By and large, rental rates of farmland are determined by the market and what others are paying in a certain geographic area. For the most part this is true, but there are actually several factors that can and should affect rental rates. Over the next several weeks we will talk about each of these factors and bring some insight to how best view them when determining rental cost. These factors include: the supply and demand for farmland, the profitability of the crop being produced, soil quality and field conditions, field size and shape, availability, location and access to water or drainage. Today we will focus on how supply and demand impact rates.
Supply and demand is an economic principle that many of us have learned throughout the years. The supply represents how much the market can offer while the demand is referred to as how much of the product or service the buyers are in need of. The swing in supply and demand affect the price of a particular good or service. The higher the demand in a market with limited supply, the higher the price will be. If the demand is lower and there is an abundant supply, the pricing will be just the opposite.
But how does this influence farmland?
A few years ago a group of growers and I went to Moline, Illinois to the John Deere Harvester Works to visit the plant where the S-series combines are manufactured. It is an amazing process and if you have not been there, I would definitely recommend a road trip. But in their visitors center down the road they were highlighting American agriculture and how productive the American farmer is. In one section of the building there was a count-down timer that grabbed my attention. This timer showed the amount of farmland that is decreasing and the rate at which it is being lost. Now I don’t know how accurate this is or where they are getting these numbers, but the point was well made that the loss of land is inevitable. I do not have to drive very far to see this in action. I live in Boone County, Indiana which is one of the doughnut counties around Indianapolis. Daily I see land that used to grow a crop being developed into housing additions, shopping areas, factories and athletic fields. I know this is not unique to central Indiana but is happening all over the country.
With the law of supply and demand, it is clear that demand is going to continue to grow due to the global population increase and their need for more value-added food and fiber. But the supply of land is moving in the opposite direction causing a much wider gap between the supply and the demand. With this broadening gap, efficiency and getting the most out of each acre will become the difference between those of you who are farming with a long-term vision and those who are farming the way they always have. The market will continue to drive the rental cost but those who are more efficient with their farming operation and are getting more out of the soil will have the advantage moving into the future.
Where do I find farmland?
It’s not like there is a bank of land out there, readily available to farm and sitting idle. In order to find farmland, you have to be willing to go after land that someone else is already farming. This introduces a fear that is only present in agriculture. If you were a manufacturer or in any other service industry, this would not even be a question or a fear. But with farming it is. However, if growth is important, there is no land suitable for farming that is not in production today. To meet the global food demand, we need more of you who are achieving these efficiencies to grow. I know that may be a harsh statement but it is a reality. Bird Dog is here to helps you connect with landowners who want the best for their farmland, so working with the best farmer is a high priority for them.