The End of the Boom?

It seems that the boom in Midwest grain and land prices may finally be coming to an end. Over the last ten years or so land prices in the industrial agricultural belt have soared along with commodity grain prices, and huge sums of money have been made.  Now prices have settled down and are beginning to drop.  Whether this will be a “correction” or a full-blown bust remains to be seen.

According to an article I recently read, average net incomes for a typical 1,200 acre grain farm in Minnesota went from less than $20,000 in 2001 to $374,000 in 2012. Of course, most of the grain farms in the Midwest are much larger than 1200 acres. The article noted that land values in the grain belt of Minnesota now average $8204 per acre, compared to $2370 ten years ago. During much of the time this was occurring, most of the rest of the country was experiencing a severe recession.

There are lots of reasons why grain prices and farmland have risen so high over the last ten years. One important reason is the dramatic increase in the production of ethanol.

Over the last ten years forty-three ethanol production plants have been built in Iowa, accounting for 30% of all US ethanol production. 60% of Iowa’s entire 2013 corn harvest was processed into ethanol.

I’ve often read that Iowa has the best farmland in the world. It has deep rich topsoil created by nature out of hundreds of thousands of years of prairie grass. I can’t help but wonder if growing corn that will be converted into ethanol is truly the best use of that soil.