Farmland values in the Midwest are rising sharply due to the ethanol effect.

The Federal Reserve Bank of Chicago's February 2007 Ag Letter reported Wednesday that Indiana and Illinois farmland values jumped 6 percent last year and 2 percent from Oct. 1, 2006, to Jan. 1, 2007, to extend "the strongest stretch of gains since the 1970s."

The Fed did not release the actual cash values, but a separate report from the U.S. Department of Agriculture stated that in August 2006 farmland had an average value in Illinois of $3,800 per acre and $3,630 in Indiana.

"This shift to faster growth in farmland values during the last half of 2006 coincided with significantly higher corn and soybean prices, which boosted net farm income," business economist David Oppedahl wrote.

Illinois, Indiana, Iowa, Michigan and Wisconsin "had the capacity to produce 55 percent of the U.S. ethanol output in 2006," Oppedahl added.

Like higher corn prices, proximity to ethanol plants has a strong effect on land values, according to Joseph Parcell, an agricultural economics professor at the University of Missouri.

"An increase in corn prices in the local area tends to occur when an ethanol plant begins production," Parcell wrote in an article last year. "Landowners are the actual benefactors of an increase in corn price from ethanol production."

Illinois and Iowa are the U.S. leaders in both ethanol and corn production, and Iowa experienced the greatest "surge" in farmland values in the Midwest: 13 percent annually and 7 percent in the last quarter.

Coinciding with higher farmland values in Illinois and Iowa, the U.S. Department of Agriculture announced on Feb. 7 that it has ceased accepting sign-ups for its Conservation Reserve Program for this year and next and will allow farmers to pull out of the program without financial penalty. The USDA did not explain why.

The CRP pays farmers a yearly fee to not farm "environmentally sensitive" lands that are prone to excessive erosion or that border waterways susceptible to pesticide and fertilizer runoff.

CRP contracts can last 10 or 15 years.

The USDA estimates that nearly 2 million acres of Iowa are CRP lands and that 100,000 acres of Iowa land will exit the program this year.

Conservationists and sportsmen are concerned that rising farmland values combined with the USDA's step back from the CRP will leave Midwestern land, water and wildlife at risk.

Pheasants Forever, a conservation and sportsman advocacy organization, issued an "action alert" to its 110,000 members on Feb. 16 urging them to contact their representatives in opposition to the CRP changes.

The change in the CRP program has to do with ethanol, said Bob St. Pierre, public relations director for Pheasants Forever.

"The price of commodities and the president's directive to create renewable energy, specifically ethanol ... rising land values ... they're all hurting conservation," he said.