Barron’s (paid subscription required) has an interesting lead story this week on the impact of the boom in ethanol on farmland prices.
The story basically says if you’re looking at corn ground as an investment, watch out: you might be getting in too late.
Excerpt #1:
Don’t Bet the Farm Farmland prices are soaring, thanks mainly to rising demand for ethanol. But like other bubbles, this one could get sunk. (Video) http://online.barrons.com/article/SB119882116265055389.html?mod=djemWR
Excerpt #2:
. . . The catalysts in the farmland bubble are federal subsidies to ethanol producers and the belief that ethanol demand will keep rising and that China’s and India’s new wealth will keep boosting global commodity prices.
Indeed, U.S. farmers are switching to corn from other crops, curbing supplies of food grains. Nationwide, from 2002 to 2007, the number of acres on which corn was planted rose 24%, to 86.1 million. And the energy bill recently signed by President Bush and strongly backed by both parties mandates that oil refiners eventually boost ethanol use as a gasoline additive to 36 billion gallons a year from the current seven billion gallons.
Aided by a drought that reduced food exports from Australia, net U.S. farm income will hit a record $87.5 billion this year. Americans spent $642.5 billion on food in 2006, up 4.5%. And warnings have begun appearing in print — see the Dec. 8 issue of The Economist — on TV and online about the end of “cheap food.” …
http://online.barrons.com/article/SB119882116265055389.html?mod=djemWR&apl=y
Of course, South Dakota is a part of this boom, at least eastern South Dakota and its part of the Corn Belt. This admission will confound my conservative critics but there are no easy answers when it comes to energy independnece. Short-term, foodstuff ethanol like corn may be a bridge to better, more ecological technologies like cellulosic ethanol. But I don’t think it is a long-term solution. There does appear to be some push on food prices because of rising corn prices. In the meantime, while I hope South Dakota’s farmers can take advantage of the ethanol boom and the increase in their land values, I hope it is also not an impetus for more out of staters to take an even greater control of our state’s natural resources. If the out of state capitalists read Barron’s, they might think twice.
