Dubuque Telegraph Herald, IA
12-02-07
Land-price boom to eventually produce doom?
Thirst for fuel sparks surge in unfamiliar areas
By Alan Guebert
American humorist Will Rogers once cracked that Americans are the only people
in the world to drive themselves to the poor house.
That observation, made at the height of the Great Depression, remains accurate
today. Regardless of our personal or national finances, we will never give up our
$3-per-gallon lifestyle.
While this American birthright -- E Pluribus Hummer? -- carries many geopolitical
consequences, there's no doubt of its effect on land prices. Farm and ranch land
prices, lit by near-atomic forecasts of a farm-based, biofuel future, caught fire in
2007.
Pick any spot in any state and the chances are 100 percent that its land prices
are up at least 10 percent in 2007, according to data compiled by Federal
Reserve district banks.
Prices for "good" Iowa farmland, according to the Chicago Fed, rose anywhere
from 13 percent in the state's south central region to 22 percent in north central
region from July 2006 through July 2007.
Non-irrigated farmland values in the High Plains, reported the Kansas City Fed
this summer, rose 13.8 percent in
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the past year while ranchland values climbed 13.5 percent. And, oh, irrigated
land climbed, too; up 13 percent.
South of the Plains, the land market was even hotter. The price for ranchland in
the Fed's 11th District -- Texas and pieces of New Mexico and Louisiana -- shot
up 18.2 percent from mid-2006 to mid-2007. Non-irrigated farmland prices rose
13.4 percent over the same period and irrigated farmland climbed 13.7 percent.
Similarly, the Minneapolis Fed reported prices for non-irrigated farm and ranch
land across its North Dakota-to-Michigan region gained 17 and 16 percent,
respectively, in the latter half of 2006 and first half of 2007.
Most of these gains have the same, two, intertwined drivers: $100-per-barrel
crude oil and an American ethanol industry that will liquefy as much corn, about
2.3 billion bushels in 2007/08, as the nation will export.
The thirst for fuel has led farmers, ranchers, market forecasters and commodity
prices into areas no one has ever been. A year ago, would any sane farmer,
rancher or market seer predicted $3.70 per bushel November cash corn after
binning a record-demolishing 13.3 billion bushel crop in October?
Sane, no; intoxicated, probably.
Moreover, if you would have had to be tipsy to foresee today's nosebleed-high
cash corn despite 2007's record crop, just how much Kool-Aid must you drink
now to think today's record land prices will continue their rocket ride?
If your drink of choice is ethanol, not much, says Bruce Babcock, an economist
and director of Iowa State University's Center for Agricultural and Rural
Development. Babcock estimates that 50 to 70 percent of the fire under land
prices is biofuels.
And it's not just land devoted to ethanol-ticketed corn. "Higher corn prices are
certainly the key element of today's higher land prices," he notes, "but look at
soybean prices and wheat prices, too. Both are substantially higher because the
global market is fighting for grain acres of all kinds and will continue to do so for a
while."
In a Nov. 28, front-page story, however, the Wall Street Journal all but
announced the death of biofuels. "Ethanol Craze Cools As Doubts Multiply,"
reads the headline of the obituary in the newspaper that, famously, failed to
foresee the 1987 stock market crash, the dot-com bust of 2000 and the great
mortgage meltdown of 2007.
So, will land prices -- with or without the Journal's reporting -- continue to rise?
I have no idea, but I suspect Will Rogers' insight remains accurate; no matter
what, we will be driving to the poor house. In my case, I'll also be toting the lovely
Catherine's sterling silver flatware.
Guebert's weekly column is published in more than