The debate has already begun. With farm incomes down, are land prices and cash rents coming down? If you answered "yes," think again. All agriculture is going to do over the next couple of years is reorganize balance sheets and shift portfolios.
The size of grain production units is about to go through the same transformation that has happened in pork production over the last five years. This is a result of technological changes as well as financial decision-making. In the long run, it's normally emotions and not finances that force farmers into early retirement. That's been true of many hog producers and is now about to take place among grain farmers.
The separation in incomes among grain farmers in the last two years has probably been wider than ever before in history. This is resulting in a separation between the top 10% and the bottom 90% in rural communities. Those who marketed well in the last two years have had about the two best financial years in their farming careers. Their financial bargaining power has improved tremendously on a relative basis.
As an economics professor once told me, "No one really does well in inflationary times or bull markets because most everyone's net worth rises together." Everyone feels good - but their relative wealth does not increase. It's times like the last two years when we see tremendous changes in relative wealth.
So what does this have to do with land prices? Consider a 600-acre farmer in his mid- to late 60s. The land is paid for, but he's losing money farming because he marketed poorly in the last two years and is therefore mad at the world. He can still get out with his equity intact and rent his farmland to neighboring producers at a comparable level for retirement.
And who's going to rent it - another 600-acre farmer or one of the two 4,000-acre farmers within five miles of his house?
To me, that answer is easy. Unless the 4,000-acre farmers have themselves done poorly in marketing the last two years, they can add 600 acres to their farming enterprises with relative ease. But another 600-acre farmer would be doubling his operation. Also, the top 10% who have made a lot of money the last couple of years are going to have plenty of fire power when it comes to bidding on cash rents or on farmland that comes up for sale.
Parting thoughts. Interest rates are low and farm debt is much too low to allow farm prices to erode from current levels. The 20% or so correction that we've just had in the last year and a half is probably about all that's going to happen. Also, keep in mind:
* Grain prices will likely stabilize and could improve over the coming winter, but don't expect a major bull market because supplies are too large.
* The Asian crisis is over. You'll soon start hearing stories about increases in demand for both meat and grains in the Asian economy.
The bad thing about commodity prices and agriculture is that good times don't last forever. The good thing is, the bad ones don't last forever, either! Have a nice Thanksgiving.