Ethanol Is Feeding Hot Market for Farmland

New York TImes, August 8, 2007

By MONICA DAVEY

DEKALB, Ill. — 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.”

So the land prices are, in some cases, scooting beyond reach, even as young corn farmers — and hopeful farmers — are enticed by the sudden demand for ethanol as a replacement for the nation’s dependence on oil.

Near Dixon, 40 miles west of DeKalb, Kyle Sheaffer, 28, serves as the local leader of a Farm Bureau committee focused on the worries of young farmers. For them, he said, the high prices have become a regular focus of concern. Meanwhile, well-off buyers and investors, he said, seem to arrive in places like Dixon with “an open checkbook.”

“At this point, it’s just super hard to rent — much less buy — ground,” Mr. Sheaffer said. “On top of the land, the initial investment to farm is so much: the tractor, the startup costs, it’s crazy. If you want to rent land, you either have to find a landlord who is sympathetic to your cause or who knows you.”

Without a family member who already owns a farm or without having a personal connection with a retiring community farmer, there is little chance of a young farmer getting in, most farmers here said. Mr. Sheaffer himself farms 2,500 acres of corn and soybeans, with his father. Without the family tie, he said, he would be out of luck.

Brent Johnson, 29, a farmer in Ashland, Ill., said the established operation run by his father and uncle are the only reason he can even consider farming.

“I don’t know anyone anymore who is doing this who didn’t come from a farm,” Mr. Johnson said. “Starting one up from thin air? I don’t know how you could now.”

Not surprisingly, the farmers are aging. In Iowa, about one-fourth of farmland is owned by people 75 or older, said Michael Duffy, a farm economist at Iowa State University. Another one-fourth is owned by people 65 to 74 years old.

Unknown is what will come of land prices if corn loses its place in the ethanol world and is surpassed by another source like cellulosic ethanol from switchgrass.

“Right now, a lot are still betting that corn-based ethanol will be around a while,” said Mr. Duffy, who is also the director of the Beginning Farmer Center, which assists farmers who are starting out. He noted two other farming booms, in the 1910s and the 1970s, which were each later followed by periods of depression.

“In five years, corn-based ethanol will be around,” Mr. Duffy said. “Fifteen years? I’m not as convinced.”