Renewable Energy: Ethanol Is Feeding Hot Market for Farmland

By Monica Davey in DeKalb, Illinois

The craze for corn to feed the demand for ethanol as a renewable energy source has been a bonanza for many farmers in the American Midwest. But with the demand has come a skyrocketing of real estate prices that threaten to keep smaller and newer farmers from joining the party.

US farmers planted 19 percent more corn this season than a year ago to capture record high market prices, fueled by demand for corn-based ethanol.
AP

US farmers planted 19 percent more corn this season than a year ago to capture record high market prices, fueled by demand for corn-based ethanol.

While much of the nation worries about a slumping real estate market, people in Midwestern farm country are experiencing exactly the opposite. Take, for instance, the farm here — nearly 80 acres of corn and soybeans off a gravel road in a universe of corn and soybeans — that sold for $10,000 an acre at auction this spring, a price that astonished even the auctioneer.

“If they had seen that day, they would have never believed it,” Penny Layman said of her sister and brother-in-law, who paid $32,000 for the entire spread in 1962 and whose deaths led to the sale.

Skyrocketing farmland prices, particularly in states like Illinois, Iowa and Nebraska, giddy with the promise of corn-based ethanol, are stirring new optimism among established farmers. But for younger farmers, already rare in this graying profession, and for small farmers with dreams of expanding and grabbing a piece of the ethanol craze, the news is oddly grim. The higher prices feel out of reach.

“It’s extremely frustrating,” said Paul Burrs, who farms about 400 acres near Dixon, Ill., and says he regularly bids on new farmland in the hopes of renting it. Mostly, he said, he loses out to higher bidders. “I crunch the numbers and go as high as I can. But then that’s it. There’s nothing more I can do.”

Mr. Burrs, who is 28, had a grandfather and a stepgrandfather who farmed. “So I guess it’s in my blood,” he said, “that feeling that you’ve got to do this, you were meant to do this.”

Still, he said, he believes that to make it a viable, “not quite so lean” full-time career, he needs to work more acres. Just the other day, he called about a farm that was up for rent. He did not get it.

“You keep trying to fight your battles,” Mr. Burrs said, “but it’s frustrating and hard, and sometimes I think, ‘Why am I doing this?’ ”

In central Illinois, prime farmland is selling for about $5,000 an acre on average, up from just over $3,000 an acre five years ago, a study showed. In Nebraska, meanwhile, land values rose 17 percent in the first quarter of this year over the same time last year, the swiftest such gain in more than a quarter century, said Jason R. Henderson, an economist at the Federal Reserve Bank in Kansas City.

A federal-government analysis of farm real estate values released Friday showed record average-per-acre values across the country. The analysis said property prices averaged $2,160 an acre at the start of 2007, up 14 percent from a year earlier.

“For everyone who owns an acre of land, we love this,” said Dale E. Aupperle, a professional farm manager and real estate consultant in Decatur, Ill., who said the rising land values were being driven by rising commodity prices (though corn has dropped some since June) and the prospect of increased demand for ethanol.

“For everyone who doesn’t own an acre of land, these prices mean it gets a little harder to get into,” Mr. Aupperle added. “For an entry-level land owner or a renter, there’s a bit of a thought right now that the train is leaving and I’m not on it.”

In Iowa, which produces more corn and is home to more ethanol plants than any other state, farm rental prices are mimicking purchase prices: they were up about 10 percent this spring over a year ago, according to a study by William Edwards, a professor at Iowa State University who said it was the largest jump since he started tracking farm rents in 1994.

And ethanol is leaving marks everywhere. New grain bins seem to be popping up all around the Midwest, farmers from Indiana to South Dakota say, and some of the highest farmland prices have been seen around the nearly 200 existing or proposed ethanol plants, where the cost of transporting the corn would be the cheapest. Mr. Henderson said he heard that land close to such facilities, most of which are in the Midwest, had jumped by as much as 30 percent over a year ago.

Some of the boom here may be tied to the dip in other urban and suburban markets: As has been true for several years, out-of-town investors (some of whom can put off capital gains taxes by taking money made from selling one piece of real estate and investing it in another) are buying some of this land. But local farmers are doing much of the buying this year, said Lee Vermeer, a vice president of real estate operations at Farmers National Company, a farm-management firm in Omaha.

“These are established farmers, though, who own other land,” Mr. Vermeer said. “For a young farmer to get in, the amount of capital required is almost prohibitive.”

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