“If you took all the gold in the world, it would make a 67-foot cube. It would be worth about $7 trillion, about a third of the value of all the stocks in the U.S. So you can own gold, which can do nothing, or stocks. You could also have farmland. If you gave me the choice, between all the farmland in the country, stocks like Exxon Mobil, or gold, I’d choose the stocks and the farmland.”

— Warren Buffett
CNBC Squawk Box
March 2, 2011

Iowa by the numbers:
92: Millions of acres of corn planted in 2011, the second largest crop since World War Two
35%: Estimated amount of 2011 corn crop used for ethanol
$1.04: Growth of $1 invested in S&P 500 since 2000
$2.72: Growth of $1 invested in Iowa farmland in 2000

You only have to look at the change in Iowa farmland values between 2000 and 2010 to see how it compares to the S&P 500.

Source: Chicago Federal Reserve Bank

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The robust demand for ethanol continued to bolster the price of corn as did worldwide demand for commodities. Keep in mind that it was this combination of lean supplies and strong demand that created farmland booms in the 1970s and the mid-1990s. Another essential element of the 1970s boom was the weak U.S. dollar, a factor that created substantial demand for exports then and now.

And don’t forget what happened in the 1980s. Farmland values plummeted 5.2 percent annually, thanks to a global recession, a stronger U.S. dollar, and federal policy decisions. Sound familiar?

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Mexico is clearly feeling the heat. Last week Mexico Agriculture Secretary Alberto Cardenas called for ethanol producing countries to reduce production of grains for alternative fuels. (The U.S. is the world’s leading ethanol producer with Brazil a close second.)

According to the AP, Sec. Cardenas blames ethanol for bankrupting many of his country’s cattle and poultry farmers as well as causing food prices to hit record highs. The government has responded by freezing prices on more than 150 food products.

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 What do you think? Is this market the strongest for farmland in decades? Weigh in using the comment form below.

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Pickens is an encyclopedia of facts and figures. At 80, he can still tick off oil reserves in Russia, the water-to-oil ratio in Saudi Arabia’s Ghawar oil field, and a whole list of other key indices. Yet to hear him tell it, Dole had a pretty good grasp of higher math as well, and it went something like this: 21 farm states = 42 senators, and they were all for ethanol. His conclusion? “We’re going to have ethanol.”

That was about 20 years ago, and Bob Dole was right. Yellow ethanol – the fuel made from corn – has come on in a big way. Between 2000 and 2006, the amount of corn used for ethanol surged 400 percent from 600 million bushels to more than 2.4 billion according to the USDA. As you might imagine, the price of Iowa farm land has also skyrocketed to more than $4,000 an acre last year. But those days are numbered.

Rising food costs and a sluggish economy are turning the tide against corn ethanol. Last month it was mainstream media: this TIME cover story titled “The Clean Energy Myth.” Today it was the business press: this Wall Street Journal op-ed titled “The Biofuels Backlash.” With millions of consumers up in arms about the rising costs of fuel and food and all three presidential candidates looking for answers, how long can Bob Dole’s 42 senators hold the line?

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I can’t say for sure that the discussion in Congress was about the Conservation Reserve Program, but it’s hard to imagine any other program that could have fit the bill the lawmakers were talking about. The debate centered on when food prices – specifically corn, grain, and rice – would start dropping. Whoever was speaking kept highlighting that land that would be coming out of contracts would undoubtedly be used for farming as demand has increased for food.

Growing corn pays more now than it used to, and it sure pays more than growing dirt with land enrolled in the CRP.

From the moment I began reporting for The Land Report, I became a witness to this debate. Last year I saw it first-hand as the demand for ethanol sent corn prices through the roof to $4 a bushel. More and more land was being converted from farming and expiring CRP contracts to produce ethanol. Now it has become clear that our love affair with this wonder fuel has failed. Not only does it not solve our fuel problems, but it has sent our food prices shooting skyward.

So what we’ve got is a obsession with an idea that won’t work (see: ethanol) causing food prices to further strain the economy (see: your local grocery store) pushing some to rethink their efforts to preserve land (see: CRP) because of a need to generate different sources of income (see: recession).

So what say you? Do you have CRP land that you’re rethinking the contract on? What are your options and how much do you stand to gain from it should you pull land out?

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By: Grant Gannon

In West Texas there is a land rush occurring, too. The area has seen growth in land prices for several reasons, according to Monte Lyons of Hall and Hall Ranch Sales.

“It’s a little bit of a perfect storm so to speak in that the traditional farm properties, which there are some good ones out here, with ethanol and the proliferation of the dairy industry has a little bit of a land rush going on out here with feed production and waste handling,” Lyons says.

Demand for ethanol has pushed corn prices over $4 a bushel in several areas of the country, spurring a need for alternative feed sources for cattle in traditional ranch areas.

“With grain prices going up leaving cattle on pasture, whether it’s grass or wheat, is an attractive alternative to some of these cattle feeders,” Lyons says.

The trend towards recreational use of land and the accompanying pricing is what surprises Lyons the most. He has been working in lending in West Texas since moving back to Texas in 1990. Before he left, land use was geared more towards production, he said.

Now, people want the land for play.

“To see that flip flop, particularly on the ranch side, to where it’s more driven from a recreational standpoint,” Lyons says. “It’s really accelerated in the last four or five years. The level of acceleration has been even greater in the last two to three years.”

One example is Dickens County, where Lyons says values have tripled in the last five years.

What drives prices?

“It varies. Is it a hunting place? How far from the Metroplex? How far from Lubbock? Quail and deer are the big drivers too,” Lyons says.

Lyons says he sees some ‘weekend warrior’ types buying land but the type of person who has ranching ingrained in their life still dominates the market.

“Here it’s a way of life thing and I think for a lot of places there is some happy medium between totally running off the cattle and cutting back where you’re supporting the wildlife and ranching operation,” Lyons says. “The way the values stack up there has to be utility value for that owner if they consider a long term play. While values for leasing it out have gone up and up, that won’t carry the day from an investment stand point. You’ve got to have the appreciation aspect. That part runs a little deeper than the wildlife side.”

That market currently favors the seller.

“If you’re willing to turn loose of it, someone is going to pick it up. We have such diversity out here,” Lyons says.

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Consider this: If every kernel of corn and if every single soy bean produced by American farmers were converted into ethanol, it would account for just 20 percent of the country’s on-road fuel consumption. That’s one of many eye-opening conclusions in Michael Grunwald’s lucid account. Ethanol is not the answer to our national woes. It is one of many answers on a long list of energy sources that are presently underutilized, including natural gas, coal-to-liquids, wind power, solar power, and nuclear power.

Parting Thought? It’s all about the land, isn’t it?

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BY ERIC O’KEEFE

The amount of corn used for ethanol production has increased fourfold since 2000 from 600 million bushels to more than 2.4 billion bushels in 2006.

FACT: 16.5% Increase in average price of an acre of land in Iowa

In Iowa, the average price of an acre surged 16.5 percent to $4,313 for the year ending March 1, according to the Realtors Land Institute (RLI). The USDA reports Missouri farm values up more than 15 percent to $2,280 per acre. Even recreational land prices surged: 12 to 13 percent in Illinois, according to the Illinois Society of Farm Managers and Rural Appraisers. And the fuel propelling these increases? Government subsidies for corn ethanol.

The amount of corn used for ethanol production has soared fourfold since 2000 from 600 million bushels to more than 2.4 billion bushels in 2006 (more than 20 percent of the U.S. corn crop). According to the USDA, that number will increase more than 40 percent in 2007 when an estimated 3.4 billion bushels are used. In addition to keeping corn prices at near-record highs, this trend has led to a decrease in the number of acres planted in soybean and cotton, the conversion of Conservation Reserve Program acres back to cropland, and even farmers in nontraditional corn states converting crops to corn.

Broker Randy Hertz has been monitoring this price surge from the eye of the storm: rural Iowa. The president of Hertz Real Estate Services and the 2006 national president of the RLI, Hertz labels this phenomenon “ethanol euphoria.” He also offers some advice to those unfamiliar with the driving force behind these production numbers: “Never underestimate the ability of the American farmer to produce corn when the price is high.”

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