BROOKINGS, S.D. — The U.S. ethanol industry experienced its first major “boom” in the early 2000s, thanks to changes in U.S. energy policies — particularly biofuel mandates — along with the surging crude oil prices and the phase out of a fuel additive, methyl tert-butyl ether (MTBE). In response, corn prices rose by as much as 31% and, according to a new study from South Dakota State University’s Ness School of Management and Economics, farmland values in ethanol-producing states increased by as much as 44%.
Led by SDSU assistant professor Hoanh Le, the study, published in the academic journal Applied Economic Perspectives and Policy, provides the first causal estimates of the ethanol boom on farmland values.
“The ethanol boom substantially increased farmland values in the Midwest, with effects intensifying as renewable fuel requirements expanded and crop markets adjusted,” Le said. “From a policy perspective, these results highlight that biofuel mandates influenced not only commodity markets but also the rural land market, with farmland values serving as a key channel through which energy policy reshaped the agricultural economy.”
SDSU and ethanol
The U.S. ethanol industry can be traced back to the work of SDSU researchers in the late 1970s, when the university developed the first farm scale, fuel-ethanol production still in the nation. Paul Middaugh, an SDSU microbiology professor, even traveled to Washington D.C.’s National Mall in 1979 to demonstrate to lawmakers how ethanol could be produced from corn.
But ethanol wouldn’t fully catch on in the U.S. until the next century. Spurred by rising oil prices and growing environmental concerns, Congress passed the Energy Policy Act in 2005 which established the Renewable Fuel Standard program.
The program mandated a minimum amount of renewable fuel (like ethanol) to be blended into the country’s transportation fuel supply annually. Corn — the primary feedstock for ethanol, which is produced by fermenting corn starch into alcohol— greatly increased in demand. It’s estimated the implementation of the Renewable Fuel Standard contributed to a 30% increase in corn prices between 2006 and 2014. This expanding market intensified corn production across the Midwest.
“Counties with the highest soil productivity — those with high corn suitability — were best positioned to respond to increased demand and rising corn prices,” Le said.
As the demand for corn grew, so did the demand for farmland. In rural America, farmland is highly valuable as it acts as the primary input for agriculture production and a critical store of wealth for rural households. According to the study, farmland values in high corn-suitability counties increased by $1,147 per acre after 2005, equivalent to a 44% gain relative to pre-ethanol boom levels. The effects are even larger in the most productive counties, where land values more than doubled.
“Our analysis highlights two complementary mechanisms linking ethanol expansion to farmland values,” Le said. “In the short run, higher corn prices raised farm revenues following the increase in ethanol demand. Over time, higher expected agricultural returns increased demand for productive farmland, generating persistent appreciation in land values.”
In counties considered lower-income, farmland values rose quickly — with significant increases appearing as early as 2007. Higher-income counties saw gains emerge more gradually. Le says that pattern points to a deeper consequence of the policy.
“The magnitude and persistence of this farmland appreciation suggest that biofuel mandates have had real consequences for rural wealth and land access,” Le said. “By substantially increasing the value of farmland, the ethanol boom likely altered patterns of wealth accumulation in rural areas and affected access to land for new and beginning farmers.”
Energy policies
Energy policies continue to shape rural economies and agricultural commodity markets. In March, the Environmental Protection Agency updated the Renewable Fuel Standard program volumes for 2026 and 2027. The updated rules increased the total renewable fuel volume obligations to 25.82 billion RINs for 2026 and 25.98 billion RINs for 2027 — up from 22.33 billion RINs set for 2025. RINs, or Renewable Identification Numbers, are the credits used to measure compliance with the Renewable Fuel Standard program and are roughly equivalent to an ethanol-equivalent gallon of renewable fuel.
While conventional ethanol will be maintained at the same volume as 2025, advanced biofuels, like biomass-based diesel and renewable diesel, are expected to rise in production by roughly 60%. Because these biofuels are made primarily from soybean oil, the EPA has estimated the new rules will increase the combined value for corn and soybean oil by approximately $2 billion in 2026.
The insights from this study can provide clues and context for how continued changes to U.S. energy policies and biofuel mandates may impact farmland values in the future.
“Our results highlight how large-scale energy policies can reshape agricultural land markets in ways that extend well beyond their original objectives,” Le said. “Recognizing these spatially diffuse and persistent effects is essential for a full accounting of biofuel mandates and for anticipating how future climate and energy policies may influence land markets and rural economies.”
Contributing authors include Oscar Galvez-Soriano, faculty member at the University of Chicago.
