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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowEscalating demand for corn driven by the ethanol boom is propelling farmland prices higher, but not nearly enough to deter commercial developers from nabbing prime pieces of property.
An average acre of Indiana farmland rose last year in value almost 16 percent, representing the largest annual jump in at least two decades, according to the U.S. Department of Agriculture. Prices this year are projected to increase by an even larger percentage.
Land values are escalating because corn is expected to reach $4 a bushel within six months, double the $2 price from two years ago. That’s due to growing demand for corn from fuel-producing ethanol plants.
U.S. ethanol production capacity is expected to rise to 11.6 billion gallons from the current production capacity of 5.6 billion gallons by the end of the decade, according to the Washington, D.C.-based Renewable Fuels Association. About 20 ethanol plants are slated for Indiana, where two already are operating.
As a result, some farmland in Indiana is fetching $5,000 an acre, up from $3,500 just a year ago, as farmers look to plant more acres of corn and reap the rewards from higher prices.
“You don’t want to sell too soon, but you don’t want to hang on too long, either,” said Craig Dobbins, an agricultural economist at Purdue University. “Everyone’s trying to figure out where the top might be, and that’s really difficult to do.”
Farmers who own ground are increasing their net worth, raising their borrowing limits and selling land at unprecedented prices. Landlords with farmland are charging more for rent.
But for commercial developers, the higher prices remain well below what they’ll fork over for coveted real estate.
A spokesperson for locally based Duke Realty Corp., one of the country’s largest office and industrial developers, said land it typically buys already is selling at a premium because it is near metropolitan areas.
One of Duke’s most recognizable projects is Anson, a 1,700-acre commercial and residential development near Whitestown in Boone County.
Indeed, farmland purchased for residential development typically sells for about $30,000 an acre, but sometimes can reach $60,000, real estate experts said. At the high end of the spectrum, land for retail developments can bring $125,000 to $250,000 an acre.
Doug Underwood of Pendleton can vouch for the value of farmland when it’s used for other purposes. He began farming after graduating from high school in 1963 and is selling 650 acres near Fishers to make way for the Britton Falls senior housing development at East 136th Street and Cyntheanne Road.
Homebuilder Pulte Homes is buying the land over a five-year span and has about 50 homes under construction. In the meantime, Underwood continues to farm the 350 acres of land Pulte has to finish purchasing.
He declined to divulge the exact price, but said it was too much to refuse, despite the fact the property had been in the family for generations.
“I farmed it, and my dad and my grandfather farmed it,” he said. “But farming’s a business. At a certain point in time, you’d be stupid not to do it.”
Smaller chunks of residential land nearby are being offered for $35,000 to $45,000 per acre.
The semi-retired Underwood invested some of the money in more land and is stashing away the rest for retirement. He still owns 945 acres in Kentucky that his son farms and another 700 acres in Madison County that he leases to another farmer. High corn prices most likely will prompt him to raise the rent next year.
While development is devouring land in suburban communities surrounding Marion County, building is occurring near several county seats throughout Indiana, said Don Villwock, president of the Indiana Farm Bureau.
Progress is a double-edged sword for the farming industry, Villwock said.
“For farmers who have made their investments in land, that is their 401(k)-their opportunity to cash in,” he said. But it also depletes the amount of our farmland.”
Even so, corn yields continue to grow. Better technology has enabled annual yields to increase 3 percent to 5 percent a year per acre in recent years.
U.S. growers intend to plant 90.5 million acres of corn this year, up from 78.3 million in 2006, the USDA said. Thirty percent of the bushels produced will be used to make ethanol.
The additional market for corn is positive on many fronts, Villwock said. Farmers capitalize on higher corn prices and communities near new ethanol plants benefit from the jobs created, both directly and indirectly.
Further, renewable fuels are good for the environment and national security, because much of the imported oil in the world is derived from unstable countries, he said.
“We need new uses for corn,” Villwock said, “or we would have a glut of corn stacked up on the streets of America.”
Global consumption of corn will increase to a record 730 million tons this year, exceeding supplies for the sixth time in seven years, the USDA estimates. But worldwide stockpiles will drop to 88 million tons, the lowest since 1978.
The amount of U.S. farmland dedicated to corn is the most since World War II. The push to grow more corn has led some farmers to switch soybean acreage to corn, which has put upward price pressure on soybeans, too.
Expensive corn prices also drive up costs for livestock farmers forced to pay more for feed. Higher land rents make it more difficult for young people to enter the profession.
Yet for those looking to cash out, an offer from a developer might be the answer. It was for Jeanne Clark and her husband when, in 1992, they sold a large amount of land in Fishers to avoid the encroaching “concrete jungle,” she said.
Back then, the property on Howe Road on the north side of Fishers sold for $12,600 an acre. But two years ago, Clark said, land across the road sold for $43,000 an acre, a 241-percent increase.
For the past 12 years, Clark has been a real estate associate for Wabash-based Halderman Real Estate Services, a brokerage specializing in farmland.
“When I say someone is interested in your farm, that is not easy,” Clark said. “It’s not an easy road to go down. But I’ve been there and done that, and that means a lot to people.”
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