When Comparing Input Price Changes During Multiple Year Declines, Rent is an Outlier

Agricultural economists Carl Zulauf and Gary Schnitkey indicated recently at the farmdoc daily blog (“Comparing Input Price Changes during Multiple Year Declines: Rent as an Outlier in the Current Decline“) that, “Three multiple year declines in crop revenue and price have occurred since 1970 [See Figure 1]. The index of prices received by US farms for all crops peaked in calendar years 1981, 1996, and 2012 before declining for multiple years. The index bottomed in 1986 and 2000.”

Figure 1

The farmdoc update explained that, “Price behavior of the 6 individual input categories differs across the decline periods (see Figure 2). Price of fuels varies the most.”  In addition, “The ag services and rent price index is up 20% in the current period compared with a 5% increase from 1979-81 to 1986 and a 1% decline from 1994-96 to 2000. A price index for rent alone is available since 1990. It declined by 6% from 1994-96 to 2000, but has increased 24% since 2010-12.”

Figure 2

With respect to how input prices changed in periods of stable crop prices, the authors stated that, “Compared with the 1984-2005 period, the only input whose price is increasing faster during the current period is ag services and rent (see Figure 3).”

Figure 3

Among the summary observations included in the farmdoc update, the authors pointed out that:

“- Rental rates have increased notably more during the current period than during the earlier periods.

“- This finding lifts up the need to understand why rental rates have behaved differently in the current period of crop revenue and price declines. For example, have farmers used the relatively large savings from lower fuel and fertilizer prices to maintain land rental rates?

“- This finding nevertheless underscores the need to focus on rental rates in future cost adjustments.

“- A managerial lesson from the current period of crop price declines is the need to create and adopt crop leases that are more responsive to market conditions and thus share farm gains and losses more appropriately between farmers and farm land owners.”

This entry was posted in Agriculture Law. Bookmark the permalink. Both comments and trackbacks are currently closed.