Itâ€™s official. The New York Times proclaimed in August that the market for Midwestern farmland was â€œhot,â€ a declaration akin to labeling Hurricane Katrina â€œdangerousâ€ two weeks after it devastated the Gulf Coast. Anyone remotely familiar with the Corn Belt knows that rural land prices have skyrocketed for several years. Hereâ€™s a rundown of some recent figures.
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 â€œethanol euphoria.â€ He also offers some advice to those unfamiliar with the driving force behind these production numbers: â€œNever underestimate the ability of the American farmer to produce corn when the price is high.â€