August 8, 2007 Ethanol Is Feeding Hot Market for Farmland By MONICA DAVEY

DEKALB, Ill. — While much of the nation worries about a slumping real
estate market, people in Midwestern farm country are experiencing
exactly the opposite. Take, for instance, the farm here — nearly 80
acres of corn and soybeans off a gravel road in a universe of corn and
soybeans — that sold for $10,000 an acre at auction this spring, a
price that astonished even the auctioneer.

"If they had seen that day, they would have never believed it," Penny
Layman said of her sister and brother-in-law, who paid $32,000 for the
entire spread in 1962 and whose deaths led to the sale.

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. But for younger
farmers, already rare in this graying profession, and for small
farmers with dreams of expanding and grabbing a piece of the ethanol
craze, the news is oddly grim. The higher prices feel out of reach.

"It's extremely frustrating," said Paul Burrs, who farms about 400
acres near Dixon, Ill., and says he regularly bids on new farmland in
the hopes of renting it. Mostly, he said, he loses out to higher
bidders. "I crunch the numbers and go as high as I can. But then
that's it. There's nothing more I can do."

Mr. Burrs, who is 28, had a grandfather and a stepgrandfather who
farmed. "So I guess it's in my blood," he said, "that feeling that
you've got to do this, you were meant to do this."

Still, he said, he believes that to make it a viable, "not quite so
lean" full-time career, he needs to work more acres. Just the other
day, he called about a farm that was up for rent. He did not get it.

"You keep trying to fight your battles," Mr. Burrs said, "but it's
frustrating and hard, and sometimes I think, 'Why am I doing this?' "

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, a
study showed. In Nebraska, meanwhile, land values rose 17 percent in
the first quarter of this year over the same time last year, the
swiftest such gain in more than a quarter century, said Jason R.
Henderson, an economist at the Federal Reserve Bank in Kansas City.

A federal-government analysis of farm real estate values released
Friday showed record average-per-acre values across the country. The
analysis said property prices averaged $2,160 an acre at the start of
2007, up 14 percent from a year earlier.

"For everyone who owns an acre of land, we love this," said Dale E.
Aupperle, a professional farm manager and real estate consultant in
Decatur, Ill., who said the rising land values were being driven by
rising commodity prices (though corn has dropped some since June) and
the prospect of increased demand for ethanol.

"For everyone who doesn't own an acre of land, these prices mean it
gets a little harder to get into," Mr. Aupperle added. "For an
entry-level land owner or a renter, there's a bit of a thought right
now that the train is leaving and I'm not on it."

In Iowa, which produces more corn and is home to more ethanol plants
than any other state, farm rental prices are mimicking purchase
prices: they were up about 10 percent this spring over a year ago,
according to a study by William Edwards, a professor at Iowa State
University who said it was the largest jump since he started tracking
farm rents in 1994.

And ethanol is leaving marks everywhere. New grain bins seem to be
popping up all around the Midwest, farmers from Indiana to South
Dakota say, and some of the highest farmland prices have been seen
around the nearly 200 existing or proposed ethanol plants, where the
cost of transporting the corn would be the cheapest. Mr. Henderson
said he heard that land close to such facilities, most of which are in
the Midwest, had jumped by as much as 30 percent over a year ago.

Some of the boom here may be tied to the dip in other urban and
suburban markets: As has been true for several years, out-of-town
investors (some of whom can put off capital gains taxes by taking
money made from selling one piece of real estate and investing it in
another) are buying some of this land. But local farmers are doing
much of the buying this year, said Lee Vermeer, a vice president of
real estate operations at Farmers National Company, a farm-management
firm in Omaha.

"These are established farmers, though, who own other land," Mr.
Vermeer said. "For a young farmer to get in, the amount of capital
required is almost prohibitive."

So the land prices are, in some cases, scooting beyond reach, even as
young corn farmers — and hopeful farmers — are enticed by the sudden
demand for ethanol as a replacement for the nation's dependence on
oil.

Near Dixon, 40 miles west of DeKalb, Kyle Sheaffer, 28, serves as the
local leader of a Farm Bureau committee focused on the worries of
young farmers. For them, he said, the high prices have become a
regular focus of concern. Meanwhile, well-off buyers and investors, he
said, seem to arrive in places like Dixon with "an open checkbook."

"At this point, it's just super hard to rent — much less buy —
ground," Mr. Sheaffer said. "On top of the land, the initial
investment to farm is so much: the tractor, the startup costs, it's
crazy. If you want to rent land, you either have to find a landlord
who is sympathetic to your cause or who knows you."

Without a family member who already owns a farm or without having a
personal connection with a retiring community farmer, there is little
chance of a young farmer getting in, most farmers here said. Mr.
Sheaffer himself farms 2,500 acres of corn and soybeans, with his
father. Without the family tie, he said, he would be out of luck.

Brent Johnson, 29, a farmer in Ashland, Ill., said the established
operation run by his father and uncle are the only reason he can even
consider farming.

"I don't know anyone anymore who is doing this who didn't come from a
farm," Mr. Johnson said. "Starting one up from thin air? I don't know
how you could now."

Not surprisingly, the farmers are aging. In Iowa, about one-fourth of
farmland is owned by people 75 or older, said Michael Duffy, a farm
economist at Iowa State University. Another one-fourth is owned by
people 65 to 74 years old.

Unknown is what will come of land prices if corn loses its place in
the ethanol world and is surpassed by another source like cellulosic
ethanol from switchgrass.

"Right now, a lot are still betting that corn-based ethanol will be
around a while," said Mr. Duffy, who is also the director of the
Beginning Farmer Center, which assists farmers who are starting out.
He noted two other farming booms, in the 1910s and the 1970s, which
were each later followed by periods of depression.

"In five years, corn-based ethanol will be around," Mr. Duffy said.
"Fifteen years? I'm not as convinced."