Does a Rising Biofuels Tide Raise All Boats? A Study of Cash Rent Determinants for Iowa Farmland under Hay and Pasture

Xiaodong Du, David A. Hennessy, William M. Edwards
October 2008  [08-WP 479]

Iowa's farmland consists of over 16% hay crops and pastureland, a significant portion of which is under cash rental contracts. This study investigates the comparative relationships between cash rental rates for cropped land and non-cropped land, where the latter includes hay and pastureland. We find that higher crop prices resulting from biofuel demand induces land use conversion from non-cropped land to crop production and thus bids up non-cropped land rents. Compared with changes in cropped land cash rents, non-cropped farmland rents could increase by a higher percentage. Non-cropped land cash rental rates are largely determined by crop and feeder cattle prices, population density, soil quality, and proportion of non-cropped land in a specific area. A primary effect of ethanol subsidies is the redistribution of income between corn growers and livestock producers, whereby higher livestock feed costs together with increasing hay and pastureland cash rents harm the dairy and feedlot beef sectors. Our study shows that, because of the positive effect on rents, the policies have an indeterminate effect on landowners operating in the cow-calf sector.

Keywords: biofuel, pastureland, cash rents, random effects model.

JEL classification: C5, G1, Q1

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