Farmland value on rise with ethanol
By James P. Miller
Tribune staff reporter
Published February 23, 2007
Ethanol fever is not only driving up corn and soybean prices and putting extra money in farmers' pockets these days, but it's helping to fuel a surge in agricultural land prices as well, according to the Federal Reserve Bank of Chicago.
The cost of good-quality farmland jumped a dramatic 13 percent in Iowa last year, the Chicago Fed said in its February agricultural newsletter. Prices for farm acreage rose 10 percent in Wisconsin and 6 percent in Illinois, according to Fed economist David Oppedahl's survey of more than 200 agricultural bankers.
For the Fed's 7th District as a whole, encompassing all of Iowa and large portions of Wisconsin, Illinois, Indiana and Michigan, the annual price increase was 9 percent. Farmland prices in the district rose 12 percent in 2004 and 10 percent in 2005, and although the growth rate in 2006 didn't quite hit double digits it extended "the strongest stretch of gains since the 1970s," Oppedahl noted.
The area with the biggest rise was northwest Illinois, where prices soared by 17 percent last year.
The price of farmland routinely tracks the price that farmers receive for their grains, moving up in flush times and down in periods when grain prices are low.
During 2006, farmland values began to accelerate in the second half of the year, a period that Oppedahl notes "coincided with significantly higher corn and soybean prices, which boosted net farm income."
Corn prices have spiked to their highest levels in a decade because of increasing demand for ethanol, the corn-derived alternative fuel.
Ethanol production is expected to use 20 percent of the corn crop in the coming year, compared with 14 percent last year, the Fed report said.
As farmers commit more acreage to corn, fewer acres are available for soybean planting. The result, predictably, has been a jump in soybean prices and a related rise in the land used for growing such crops.
Farmland prices in the Fed's heartland 7th District have been rising, at least moderately, for the past several years, with prices growing by at least 5 percent in each of the past five years.
But after a major run-up in the 1970s, land prices collapsed in the early 1980s, falling by at least 20 percent in a couple of years, and by more than 10 percent in two other years in the first part of the decade, years when low grain prices were causing farmers to sell their property or to lose their farms because they couldn't pay their bills.
Based on the responses to his latest survey, Oppedahl said, "gains in district farmland values look unlikely to slow down in the near future."
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jpmiller@tribune.com
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