USA – Not a pretty picture25 Dec 2012
Neither the outcome of the federal election nor the fast-approaching budget “fiscal cliff” bothered any of the 250 gawkers and bidders at a 1,170-acre land rental auction Nov. 10 in Thurman, Iowa.
That’s right, an auction where the right to crop one family’s five parcels of Fremont County, Iowa, the absolute southwest corner of the state, went on the block that Saturday at the appropriately-named Skyline Sportsman Club.
Minutes later, every notion about local land values had surpassed any skyline — nearby Omaha’s, the more distant Des Moines’ and even that of super-tall Chicago. The winning bids were:
· Tract One, 196 acres, all tillable, $545 per acre;
· Tract Two, an all-tillable 158 acres, $470 an acres;
· Tract Three, 296 acres, all tillable, $520 per acre;
· Tract Four, 104 acres, all tillable, $485 per acre and
· Tract Five, 417 acres, all tillable with some grain storage, $615 per acre.
As stunning as those prices are — an average $548 per acre — the terms of the rental deal are even more stunning.
According to Jim Hughes, whose firm, Jim Hughes Real Estate in Glenwood, IA, brokered the deal, the land was rented for two years only. Cash rent terms for 2013 are 25 percent of the day of auction, the remainder on March 1, 2013. For 2014, 25 percent is due Jan. 1, 2014; the balance on March 1, 2014.
In short, you pay, then pray, then plant.
Hughes describes the renters as “local farmers who are willing to risk grain prices and weather on a two-year, $550-an-acre rental deal rather than a 30-year, $12,000-an-acre purchase deal.”
Many ingredients go into the rocket fuel that pushes land values and rents to the moon: commodity prices, aggressive local farmers, excess machinery capacity, cheap labor, low interest rates, federal farm program benefits.
A new, major ingredient, however, is federal crop insurance, the heavily subsidized program that delivers an ironclad guarantee on locked-in revenue regardless of weather, commodity prices and federal farm payments. (In 2012, 62-cents of every $1 in federal crop insurance premium were paid by taxpayers.)
“Oh, crop insurance played a definite role in the prices,” reckons Hughes. “It’s the best thing that ever happened to farmers.”
Bruce Babcock, professor of economics at Iowa State University and a faculty member of ISU’s Center for Agricultural and Rural Development, agrees. “If you can lock in 85 percent of your expected revenue” — the level permitted under current federal crop insurance programs — “you’ve taken virtually all the risk out farming,” he says.
And it will get better. Part, if not all, of the remaining 15 percent of crop revenue presently not insured under the federal program is almost certain to be covered if and when Congress finally approves a 2012 Farm Bill. Both the Senate and House versions raise subsidized coverage over 90 percent.
That’s an unbelievable move, opines Babcock, at a time when there is a bipartisan call in Congress for all Americans to assume “more risk” — take cuts in federal programs like food assistance, retire at an older age, pay more taxes — in the marketplace in order to cut federal spending.
But when it comes to the Farm Bill, Congress is proposing to “ratchet down market risk” — raise the level of subsidized crop insurance — “while doubling down on the cost of these programs rising?” he asks. “This is just insane.”
Babcock is exactly right: how can farmers and farm groups ask taxpayers to underwrite an expansion of an already highly-subsidized revenue insurance program that guarantees farm income and higher land values, but does not — cannot — guarantee food production or conservation compliance?
Farmers better come up with an answer quickly because the question will be asked.
The Farm and Food File is published weekly in more than 70 newspapers in North America. Contact Alan Guebert at http://www.farmandfoodfile.com
Statistics: Posted by yoda — Tue Dec 25, 2012 1:56 pm
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Pricier food, rent offset falling gas prices
By John Waggoner, USA TODAYShare3 CommentFederal Reserve Chairman Ben Bernanke, chief inflation-watcher for the U.S. economy.(Photo: Manuel Balce Ceneta, AP)
CPI has risen 2.2% in the past 12 months
Food price hikes ‘are an almost perfect offset’ for falling gas prices
November 15. 2012 – As expected, the government said Thursday that rising food costs and higher rents offset a drop in gas prices last month, leaving consumer prices slightly higher in October compared with the previous month.
The Labor Department said the consumer price index rose a seasonally adjusted 0.1% in October, down from sharp gains of 0.6% in each of the previous two months.
In the past 12 months, prices increased 2.2%, just above the Federal Reserve’s inflation target of 2%.
Food prices rose 0.2%, while gas fell 0.6%. Excluding the volatile food and gas categories, core prices increased 0.2% in October.
The cost of shelter, which includes rents, rose 0.3%, the most in more than four years. Clothes and airline fares also rose, while the price of new and used cars fell.
Wall Street seems convinced that inflation is deader than Marley’s ghost in
A Christmas Carol
. Investors could be right.
And bonds will have a merry day Thursday since the government’s latest report on its most-watched gauge of inflation for consumers appears to confirm Marley’s passing.
The CPI covers everything from the apples you eat to the Apple products you use to call and email your friends.
"Increases in food prices are an almost perfect offset for gas prices going down," says Mike Montgomery, senior economist at IHS.
When prices aren’t rising, the inflation-fighting Fed has little reason to raise interest rates. Higher rates are poison for bond investors. Bond prices fall when interest rates rise, making them less valuable and a lower-return investment.
The Fed is engaged in an unprecedented effort to boost economic growth and spur job creation. It is buying $40 billion of asset-backed securities every month, which is helping keep rates low.It’s the Fed’s third effort in as many years to help a subpar economic recovery and a jobless rate that has been stuck near 8% all year.
The Fed’s hope is that lower interest rates will spur consumers and businesses to borrow for homes, factory expansions and other economic activity that kicks up growth.
There’s a lot of money betting that rates will stay low: Investors have poured an estimated $283 billion into bond funds this year, according to the Investment Company Institute, the mutual fund trade group.
Even if the CPI skews higher, economists think the Fed will keep rates low. Sung Won Sohn, a professor of economics at Cal State University, thinks inflation will hit an annual pace of 3.6%. But he doesn’t think the Fed will raise rates.
"Right now, they’re more concerned with deflation than inflation," he says. Why? Even though the Fed’s efforts to help the economy are potentially inflationary, a worldwide slowdown in economic growth, including recessions in parts of Europe and Asia, and the risk of another recession in the U.S. if the "fiscal cliff" isn’t avoided is keeping demand for goods and services in check.
Without demand, prices don’t rise. In fact, the fear is that retailers and wholesalers will cut prices to attract customers. And finding inflation would be like hunting down Marley’s ghost.
Statistics: Posted by yoda — Thu Nov 15, 2012 9:42 am
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WEST LAFAYETTE, Ind. – Low crop yields from this year’s drought could mean an inability of some farmers to meet farmland rental agreements if they suffer major losses of income.
The possibility means tenants and landlords need to communicate with one another, and both parties need to review the terms of lease agreements.
"The ability to meet rent payments will vary widely among tenants due to the differing financial impacts of the 2012 drought," said Chris Hurt, Purdue Extension agricultural economist.
Contributing factors include final crop yields, final grain prices, the amount of production that is forward-contracted, level of crop insurance coverage, if any, whether there is livestock involved, and a producer’s financial strength heading into the 2012 drought.
But regardless of financial circumstances, Purdue Extension agricultural economist Gerry Harrison said tenants and landlords are legally locked into lease agreements.
"The law is clear on the duty to perform under a contract," he said. "A cropland lease, oral or written, is a contract."
A tenant’s overall financial position will couple with the type of lease agreement to determine whether rent can be paid and what options tenants and landlords have. Common lease agreements include crop sharing, straight cash rent or a variation of the two.
"If it is a crop share lease, the landowner is in a similar position to the tenant," Harrison said. "If the lease is a ‘flex’ lease, what is the flex provision? If the flex is based on crop yield, the lack of yield may remove any liability the tenant has, based on the flex provision.
"If the flex lease is based on price for the crop, the tenant with a short crop may have a serious problem."
Under Indiana law, a landlord can terminate a lease with 10 days’ notice if a tenant doesn’t pay rent when due, unless both parties agree otherwise or if the tenant pays the rent in full within the notice period.
"At the very least, some flexibility in non-payment of rent by the due date might be needed this year until a crop insurance payment or a loan becomes available to the tenant," he said.
Statistics: Posted by yoda — Sat Aug 04, 2012 12:02 am
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Many consider rent seeking a vital contribution of public choice economics. This brief essay will explain rent seeking and its importance to economics and politics.
Most of us are familiar with the term “rent” as in “I paid the rent on my apartment.” Here the rent in question is the return on a productive resource (housing). Economists refer to an economic rent as a return to the owner of a resource in excess of what might be expected under normal competition. Market competition tends to reduce such rents; high profits attract new entrants who offer lower prices or better value for the same goods and services.
Government can create an economic rent by limiting market competition. New York City, for example, limits the number of taxis to 13,000 or about half as many as during the 1930s when the city’s population was smaller than it is now. The cap on taxis prevents new entrants, thereby protecting the profits of incumbents. The value of such protection should not be underestimated. A license to operate a taxi in New York recently sold for over $1 million.
Who is harmed by government providing economic rents? Consumers are harmed. Given the limits on competition, riders must pay more for taxi rides in New York than they would under open competition. People who might have driven a cab absent the licensing also lose out. The economic rents provided to taxis by government also cannot be spent on other goods or services. The people who would have offered those goods and services are worse off than they would have been absent the licensing. The limit on cabs thereby distorts the economy and harms many people, many of whom are not obvious.
Some people do benefit from economic rents and therein lies the problem of reform. The owners of a license gain the right to abnormally high profits. The public officials who grant the freedom from competition receive votes, electioneering efforts, and campaign contributions from the taxi industry. Everyone in the industry has a clear material interest in continuing the licensing whatever its effects on everyone else.
Some people say that removing the power to offer rents would avoid rent seeking. If government did less, officials would have fewer economic rents to offer leading in turn to less rent seeking and less damage to society. True enough. But existing laws and regulations cannot be wished away. We need a political solution to rents.
Imagine that by chance or design a New York mayor decided to eliminate taxi licensing. The industry would lose all the benefits noted above; in particular, owners would lose the value of their license, which depended on the protection from competition. They would have one million reasons to resist reform and would quickly organize resistance to the mayor’s proposal. Protests would fill the evening news. Poor service would be predicted. The sad plight of the cabbie would be discussed.
But, you say, what about the winners? Wouldn’t they rally to the side of reform? After all riders would pay less to get across town. Other people suffer in various ways from the licensing.
Probably not. In New York, many taxi riders would be from out of town. The businesses who would benefit from diverting dollars away from overpriced cab rides do not exist and thus cannot lobby the city government. Even those riders who live in New York would gain at most a few hundred dollars if the licensing disappeared.
Government responds to organized interests. Taxi owners have a lot to lose and thus sufficient motivation to pay the costs of organizing and influencing public decisions about taxi licensing. Taxi riders are different. The costs of organizing for them are likely higher than the gains from less expensive rides. Taxi licensing persists despite imposing aggregate costs on many New Yorkers.
Rent seeking involves other costs to society. The economic rents provided by the government are not economically productive. The resources spent seeking to persuade officials to grant an exemption from competition to an organized interest are wasted. This waste includes not only money but also the diversion of talent and time into rent seeking. Smart lobbyists might have done something more productive with their brains and their time.
Those who see government officials as benevolent seekers after the general welfare have a hard time accounting for rent seeking. It is not enough to say that bad people in office should be replaced by a better sort. The incentives created by awarding rents to organized groups would remain when the better sort arrive.
The idea of rent seeking tells us to be skeptical of government, pessimistic about reform, and morally outraged about the status quo.
Eamon Butler. Public Choice – A Primer. London: Institute of Economic Affairs, 2012.
Mancur Olsen. The Logic of Collective Action: Public Goods and the Theory of Groups (Revised ed.). Cambridge: Harvard University Press, 1965.
Gordon Tullock, “The Welfare Costs of Tariffs, Monopolies, and Theft ,” Western Economic Journal, 5(June 1967)224.
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By Tricia Phillips 1 Comment 30 May 2012 00:00
High rents forcing thousands into debt
A Rightmove report revealed the average amount spent on rent in the UK is 38% of net income
ONE in three tenants say they have to cough up more than half of their take-home pay on rent.
A Rightmove report revealed the average amount spent on rent in the UK is 38% of net income and six in 10 predict their rent will rise during the next 12 months.
This comes hot on the heels of a warning from debt charity the Consumer Credit Counselling Service that high rents are forcing thousands into hardship.
More than 10,000 people asked the charity for help with rent arrears in 2011 – a 27% increase on 2010.
Kay Boycott from housing charity Shelter said: “These figures paint a worrying picture of the rising numbers of families facing a monthly battle to keep a roof over their head.
"High unemployment and rising living costs continue to take their toll.”
Statistics: Posted by yoda — Wed May 30, 2012 9:45 am
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