New York Times
08-08-07
Ethanol Is Feeding Hot Market for Farmland
Sally Ryan for The New York Times
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 farmmanagement 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.”
More Articles in National »