Friday, April 18, 2008

Land Grab

In 1862 President Lincoln signed the Homestead Act into law, despite vehement opposition by Northern factory owners and Southern politicians. The U.S. government began an unprecedented distribution of unsettled land to any U.S. citizen who could file an application. A deed of title was given after the land was “improved” by the “homesteader.” Improvement meant occupation for at least five years and growing crops. Up for grabs was a wide swatch of land in the mid-section of the country - part of the Louisiana Purchase.

It was not as easy as it might sound. The land in the mid-west was mostly treeless and windswept. Homesteaders had to survive raging blizzards in the winter and blistering heat in the summer. Plagues of insects and drought destroyed crops. Even if weather conditions were optimal, the 160-acres parcels were not productive enough to raise a decent size crop of support foraging animals like cattle or horses.

Only the hardiest pioneers survived. Some flourished. By 1934, over 1.6 million homestead applications were processed and more than 270 million acres - 10% pf all U.S. land - passed in the hands of individuals.

I recently looked in county records in South Dakota to see the homestead claim of my paternal grandfather. It is fortifying to know that the blood of someone with such grit also flows in my veins.

Economic conditions now call for a new kind of resolve. There is a new tension rising over land use in the Midwest.

The annual sign-up begins today for participation in the Conservation Security Program (CSP) sponsored by the U.S. Department of Agriculture. The program provides financial and technical assistance to farmers to promote conservation and soil improvement on land under all types of use.

The CSP is a concession to the belated understanding that not all the land opened up to homesteaders for planting crops was well suited for cultivation. Big problems are presented by soil erosion and loss of wildlife that serve as the first line of defense against insect pests.

Another program sponsored by the U.S. Department of Agriculture - the Conservation Reserve Program (CRP) - actually takes land out of cultivation. Farmers must decide if they want to convert cropland susceptible to erosion into vegetative cover such as native grasses or trees. Farmers receive an annual rental payment for the term of a multi-year contract.

It is a tougher decision this year. The price of corn recently topped $6.00 a bushel - an enticing figure considering the average farm acre produced 150 bushels of corn last year. Of course, that is a national average yield. In South Dakota where much of the land is marginal for cultivation purposes, the average corn yield per acre was 120 bushels. Compare even that lower dollar yield figure of $720 per acre that the average $49.49 per acre CRP rental payment received by farmers last October 2007.

Land use decisions will only become more difficult, particularly in the Midwest where ethanol production relies heavily on corn as feedstock. A switch to alternative feedstock - unless it is waste - will not change the importance of land as a component of the profit equation. If our economy is going to continue to rely on carbon-based inputs for energy by using the plant mass, then there will be tension among the various uses for land - wildlife habitat, food production, housing or commerce. The highest and best use of land should be constant point for analysts looking at company that 1) own land or 2) rely on natural resources for at least some of its production.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

No comments: