Land, Corn, and Ethanol

There was an article in USA Today today (July 18) about how due to ethanol, corn prices have risen dramatically which has caused land prices to skyrocket in the Midwestern U.S.

The article, Land prices leave farmers in a lurch, by Sue Kirchhoff, can be found in its entirety at: http://www.usatoday.com/money/industries/food/2007-07-18-farmland-prices_N.htm.

But here is a few verbatim excerpts from the article that I found to be particularly interesting:

"Looking ahead, it's hard to overstate the potential impacts of the ethanol industry. Acting in response to government subsidies and mandates to combat global warming and reduce U.S. demand for imported oil, about 20% of U.S. corn production is now dedicated to ethanol. Corn prices more than doubled to nearly $4 a bushel on futures markets, before falling recently. Corn closed on the Chicago Board of Trade Wednesday [July 18, 2007] up 4½ cents at $3.27 — still historically high. The price rise has increased the number of farmers buying land to expand."

"'It's all driven by corn prices, but is this sustainable?' says University of Nebraska economist Bruce Johnson, speaking of a 14% rise in land values across the state in the 12 months ended in February. 'We have to be really cautious here so that we don't fall into chasing appreciation.' "

"Rising prices for corn and other crops are pushing up land prices and having other indirect effects. Getting to Paulman's farm means driving through miles of lush corn fields watered by huge wheel-mounted sprinklers. The thirsty corn crop is straining water supplies. If corn prices stay high, farmers could take more fragile land out of the federal Conservation Reserve Program."

"There is a sense of uncertainty beneath the buoyant prices and rush of ethanol plant start-ups here. Federal ethanol economics include a 51-cent-per-gallon tax credit for petroleum firms that blend ethanol, a 54-cent-per-gallon tariff on imported ethanol and tax incentives for smaller firms. States have their own programs."

"'The goal was for ethanol … to create a local market for corn over which farmers had better control than they had historically' with much of their product exported out of state, say Todd Sneller, administrator of the of the Nebraska Ethanol Board, a state agency. 'I don't think any of these communities would have been willing to host (ethanol) plants if they thought this was short term.'"

What are the morals of this story as see it?
1. Too many farmers overly rely on subsidies.
2. 20% of U.S. corn production is now dedicated to ethanol ... that's a heck of a lot of corn taken away from feeding livestock.
3. Farmers complain when corn prices are down, and they complain when they're up as well.
4. Greedy farmers taking more land out of the federal Conservation Reserve Program, which is not a good thing, as it will greatly increase erosion and other related problems.
5. Government taxes are too high on alternative fuels.

There's a lot more to it, so read the article (and the related Water constraints rain on ethanol zeal article).