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

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  • Du Xiaodong

    (Iowa State University)

  • Hennessy David

    (Iowa State University)

  • Edwards William A.

    (Iowa State University)

Abstract

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.

Suggested Citation

  • Du Xiaodong & Hennessy David & Edwards William A., 2008. "Does a Rising Biofuels Tide Raise All Boats? A Study of Cash Rent Determinants for Iowa Farmland under Hay and Pasture," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(2), pages 1-25, December.
    • Handle: RePEc:bpj:bjafio:v:6:y:2008:i:2:n:7
    DOI: 10.2202/1542-0485.1238
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    1. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    2. Xiaodong Du & David A. Hennessy & William M. Edwards, 2007. "Determinants of Iowa Cropland Cash Rental Rates: Testing Ricardian Rent Theory," Center for Agricultural and Rural Development (CARD) Publications 07-wp454, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    3. Amani Elobeid & Simla Tokgoz, 2008. "Removing Distortions in the U.S. Ethanol Market: What Does It Imply for the United States and Brazil?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(4), pages 918-932.
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    Cited by:

    1. Katchova, Ani L., 2011. "Are Local Corn Prices Affected by the Location of Ethanol Biorefineries?," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114769, European Association of Agricultural Economists.
    2. Dumortier, Jerome & Carriquiry, Miguel & Elobeid, Amani, 2021. "Where does all the biofuel go? Fuel efficiency gains and its effects on global agricultural production," Energy Policy, Elsevier, vol. 148(PA).

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    More about this item

    Keywords

    biofuels; land values; farmland; Iowa;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • G1 - Financial Economics - - General Financial Markets
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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