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Land price blues?

The debate whether to write this editorial has been raging in my mind for some time.

Here's the issue. Gut instinct tells me current land values are unrealistic. As a result, I fear agriculture could well be setting itself up for another disaster like the early 1980s.

Yet my gut also warns me I could be overreacting. Also, some readers might take severe exception to me questioning the rising price of land. Putting the kibosh on high values seems un-American in a way.

So I told my instinct to shut up, opting instead to pen an editorial chewing on Washington for taking so long to pass a farm bill.

And then I read where a piece of land in central Iowa just sold for $6,850. That same week a farmer friend revealed he'd lost the lease on 320 acres of prime land in Ohio. Later he learned his competitor plunked down $375 an acre on a five-year lease in which half the rent is paid April 1!

That news dispelled any hesitancy to speak up. The time is way past due to talk about the 800-pound gorilla in the room.

Philosopher George Santayana observed, "Those who do not learn from history are doomed to repeat it." So let's reminisce a bit. Flash back to the ag boom of the 1970s. What times those were!

The then secretary of agriculture urged us to plant fencerow to fence-row. We could never grow enough food. Commodity prices seemed destined to remain high forever. And land was good as gold, if not better.

The next decade, I spent the beginning of my journalism career covering the farm depression of the 1980s. Tractorcades, parity debates, farm foreclosures -- sometimes complete with guns -- and farmer suicides were making headlines. Half of all machinery dealerships disappeared.

We certainly can't place the full blame of those times on the shoulders of 1970s land prices. Those values were wrestled to the ground by low commodity prices and then kicked in the head by sky-high interest rates.

Interest today is comparatively cheap. Agricultural enjoys the fruits of expanding overseas markets and a growing demand for biofuels. We're more efficient with fertilizer and chemicals, and have lowered our per-acre costs for machinery compared to 1978, say USDA economists. What's more, significant chunks of land that grew grain then are out of production today thanks to the CRP.

So why worry about the future?

For starters, production costs are skyrocketing -- and I'm not being sensational. Inputs are over one third higher today than a decade ago. And costs are forecast to jump 7.5% in 2008 alone.

Nonland costs for high-productivity acres (the kind that fetches $6,850 at auction) are pegged to be $370 per acre for corn. That's a whopping $50 increase in a single year and a $120 rise since 2003.

Fertilizer -- last year's price sticker shocker -- continues to climb. Fuel -- this year's cost heart attack -- will be 50% more dear than last year. Seed and machinery values won't likely wane either.

Will such input costs be tomorrow's burden like high-interest rates were in the early 1980s?

This inflation isn't the primary source of my concern, however. My biggest worry is our innate ability to produce grain. Yields continue to rise. More land, particularly in CRP acres, is coming back into production.

And then there are our competitors. Cultivated acres and yields in Brazil's verdant Mato Grosso continue to grow. Old Soviet Eastern Bloc countries are becoming productive once again thanks to the lure of foreign trade.

So what about $6,850 land and $375 rent? Good or bad? I believe the key question to ask is whether corn stays at $5 and beans at $10 while you're still paying off that loan or covering the cost of a pricey lease.

The debate whether to write this editorial has been raging in my mind for some time.

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