Skyrocketing Farmland Prices, Fueled by Ethanol

Ethanol Facts:

1. Corn is the most subsidized crop in America, raking in a total of $51 billion in federal handouts between 1995 and 2005 -- twice as much as wheat subsidies and four times as much as soybeans.

2. Ethanol is propped up by hefty subsidies, including a 51 cent-per-gallon tax allowance for refiners. A study by the International Institute for Sustainable Development found that ethanol subsidies amount to as much as $1.38 per gallon -- about 50% of ethanol's wholesale price. Ethanol is propped up by more than 200 tax breaks and subsidies worth at least $5.5 billion a year.

3. A Senate energy bill is coming up for final approval next month that would require a 7X increase in ethanol from 5 billion gallons this year to 36 billion gallons by 2022, and a separate Senate bill would raise the ethanol mandate to 60 billion gallons by 2030.

4. The ethanol legislation currently being considered by Congress will cost taxpayers an estimated $131 to $205 billion over the next 15 years in ethanol subsidies.

As would be expected, when Congress transfers $250 billion of taxpayers' money to a single industry over a 25-year period, there will be significant pressure on prices for the inputs of that industry, in this case farmland.

From today's NYTimes, "Ethanol Is Feeding Hot Market for Farmland:"

While much of the nation worries about a slumping real estate market, people in Midwestern farm country are experiencing exactly the opposite.

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.

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. In Nebraska, meanwhile, land values rose 17% in the first quarter of this year over the same time last year, the swiftest such gain in more than a quarter century. A federal-government analysis of farm real estate values released Friday showed record average-per-acre values across the country - property prices averaged $2,160 an acre at the start of 2007, up 14% from a year earlier.

Bottom Line: "Subsidizing ethanol from corn as a gasoline oxygenate is one of the most misguided public policy decisions made in recent history." Professor Tad Patzek, UC-Berkeley