Cash Crops With Dividends: Financiers Transforming Strawberries Into Securities – NYTimes.com

Cash Crops With Dividends: Financiers Transforming Strawberries Into Securities

By ALEXANDRA STEVENSON July 21, 2014 8:56 pmJuly 22, 2014 2:36 pm
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Steve Fessler of Prudential Agricultural Investments, left, shows Thomas S. T. Gimbel the harvest on a farm in Watsonville, Calif.Credit Peter DaSilva for The New York Times

His boots were caked with mud when Thomas S. T. Gimbel, a longtime hedge fund executive, slipped in a strawberry patch. It was the plumpness of a strawberry that had distracted him.

Mr. Gimbel, who once headed the hedge fund division of Credit Suisse, now spends more time discussing crop yields than stock or bond yields.

He is the man on the ground for a group of investors — including New York’s biggest real estate dynasty, two Florida sugar barons and the founder of a multibillion-dollar investment firm — who have been buying up farms across the United States through a real estate investment trust called the American Farmland Company.

Hedge funds are not new to farmland. For nearly a decade they have scoured the corners of the globe for cheap land as food prices have soared, positioning themselves to profit from the growing demand. Hedge funds now have $14 billion invested in farmland, according to the data provider Preqin.

But in the latest twist, a small but growing group of sophisticated investors and bankers are combining crops and the soil they grow in into an asset class that ordinary investors can buy a piece of.

Farmland Partners and the Gladstone Land Corporation, two real estate investment trusts that also own and lease farmland, are already trading on the Nasdaq stock exchange.

For now, American Farmland is a private company, and its founder, D. Dixon Boardman, is pitching the vision to Wall Street. Corn, cotton, lemons, walnuts, avocados: If it grows in the ground and has an attractive income stream, he is peddling it.

“It’s like gold, but better, because there is this cash flow,” Mr. Boardman said. The income stream comes from the rent farmers pay American Farmland and also often includes a share of the revenue from the crops. The company buys farms with permanent crops like almonds and avocados and row crops like cotton and corn.

Down the line, if American Farmland follows the same path as Farmland Partners and Gladstone Land and lists on a public exchange, Mr. Boardman will have another audience to pitch his vision to: ordinary investors.

American Farmland has spent $131 million on 16 farms and more than 11,000 acres of tillable land — the equivalent of 13 Central Parks. It’s a small start, but Mr. Boardman, Mr. Gimbel and their partners have large ambitions.

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This strawberry field in Watsonville, Calif., is owned by the American Farmland Company, which has acquired more than 11,000 acres of tillable land.Credit Peter DaSilva for The New York Times

They are competing with investors that have huge war chests. Alaska’s state pension fund, for example, had $485.9 million invested in farmland in 2013. The world’s biggest asset manager, BlackRock, has $180 million of its clients’ money in an agricultural fund, according to Preqin.

The latest wave of interest was generated by the 2008 financial crisis. As global food prices soared and opportunities to buy land abounded, investors like BlackRock, Whitebox Advisors, Ospraie Management and George Soros’s hedge fund, Soros Fund Management, offered their clients ways to invest in the heartland. Investors were wary of the exotic sliced-and-diced securities that had contributed to the crisis, and farmland seemed more tangible.

“It was a major inflection point,” said Philippe de Lapérouse, managing director for the agriculture consulting firm HighQuest Partners. “At that time, investors were looking at farmland as an attractive asset to hold.”

Many individual investors were soon presented with a different challenge: Farmland can be difficult to sell quickly. Some hedge funds stopped offering agriculture investments. But the flow of money from some of the country’s largest pension funds has remained steady.

Wall Street’s foray into farmland may present its own challenges. Shares in Farmland Partners and Gladstone Land have been volatile, indicating investor uncertainty. “It’s a question of whether it is really in the long term something that’s going to appeal to investors,” Mr. de Lapérouse said.

Mr. Boardman and his partners — among them Harrison T. LeFrak, of the LeFrak real estate empire in New York; Alfonso and Pepe Fanjul, the Cuban-American owners of a sugar conglomerate; and William von Mueffling, the founder of Cantillon Asset Management — think it will.

Mr. Gimbel said, “It’s unlike any other asset class.”

American Farmland teamed up with Prudential’s agricultural investment arm, Capital Agricultural Property Services, which runs a farm management and real estate brokerage business. The unit provides loans to farmers and manages farmland, giving American Farmland access to information in an often opaque real estate market.

“I was not about to put on my Wellington boots with my pinstriped suit,” Mr. Boardman said.

American Farmland and other Wall Street firms could soon crowd the heartland.

“I probably have a call from an interested party once a day, someone who has never invested in farmland,” said T. Marc Schober, a partner at Colvin & Company, which connects buyers and sellers of farmland.

Todd H. Kuethe, an assistant professor of land economics at the University of Illinois, said that at agriculture conferences, which were once the domain of farmers and industry insiders, a majority of participants are now institutional investors, venture capitalists and hedge fund managers.

“The share of bank and financial representatives who really want to know what is going on is now surpassing farmers,” Mr. Kuethe said. “I think there are more folks sitting around with money to buy than there is farmland.”

The few metrics that exist have helped lure many. National net farm income, considered a bellwether, is forecast to hit a record high of $130.5 billion for 2013, according to the Economic Research Service of the Department of Agriculture. The figure for 2014 is expected to soften to about $95.8 billion.

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Thomas S. T. Gimbel, left, and Steve Fessler among the grapevines at Kimberly Vineyards in Soledad, Calif.Credit Peter DaSilva for The New York Times

The value of farmland in the United States has appreciated on average by 8.4 percent over the last year and 4.7 percent annually since 1990, according to an index from the National Council of Real Estate Investment Fiduciaries. Taking into consideration the income generated by crops, the total average return was 17.4 percent over the last year and 11.9 percent annually since 1990.

But not everyone thinks farmland values will continue to rise endlessly.

“You can certainly overpay for farmland, and if crop prices declined for whatever reason — for example because of some type of natural disaster — there are all sorts of reasons why, all of a sudden, the income stream does not support the price you paid for a piece of land,” said Jeffrey R. Havsy, director of research for the council.

And as the financial world’s interest in farmland grows, some observers have raised concerns about the new landowners’ switching to crops that pay better but that work the soil too hard and use up precious resources like water. In California, for example, a recent move toward nut trees has put pressure on already constrained water resources during a severe drought.

These concerns are likely to increase as more farmland changes hands from farmers to corporations.

But to Mr. de Lapérouse, whose HighQuest Partners started Global AgInvesting, a series of conferences that take place in Dubai, London, New York and Singapore, the current level of interest is just the beginning.

“Less than 1 percent of global farmland is owned by institutional investors,” Mr. de Lapérouse said. “So even if you quintupled that, it would be a major sea change, but it’s still only a little territory.”

A version of this article appears in print on 07/22/2014, on page of the NewYork edition with the headline: Cash Crops With Dividends.

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Who Owns U.S. Agricultural Land? – Modern Farmer

Who Owns U.S. Agricultural Land?

The USDA released a report today detailing foreign holdings of U.S. agricultural land as of December 2011, and it’s pretty fascinating stuff. “Foreign persons” are defined as individuals who are not citizens of the U.S., foreign businesses and governments that have their principal place of business in a foreign country and U.S. entities in which there is a significant foreign interest.

Below are some of the more eye-opening facts:

So, How Much Land is Foreign Held?

Foreign investors held an interest in 25.7 million acres of U.S. agricultural land (forest land and farmland) as of December 31, 2011. This is an increase of 1,490,781 acres from the December 31, 2010 report, and represents 2.0 percent of all privately held agricultural land in the United States.

Forest land accounted for 54 percent of all foreign held agricultural acreage, cropland for 19 percent, and pasture and other agricultural land for 27 percent.

Foreign persons have reported acreage holdings in all 50 States and Puerto Rico.

The state of Texas has the largest amount of foreign held U.S. agricultural land with 2,894,563 acres. This figure represents only 1.9 percent of privately owned agricultural land in Texas.

Maine has the second largest amount of foreign held agricultural acres with 2,877,965 and Washington has the third largest amount of foreign held agricultural land with 1,671,102 acres, which is 7.6 percent of its privately held agricultural land.

16 percent of Maine’s of Maine’s privately held agricultural land is held by foreign investors; this is approximately 11 percent of the reported foreign held agricultural land in the United States.

Hawaii has the second largest percentage of foreign held U.S. agricultural land, 158,887 acres, which is 8.8 percent of the privately held agricultural land in the state. Washington, Alabama and Florida follow.

Kansas, Washington and Wisconsin showed the biggest increases in foreign-held agricultural acres in 2011. The increases were primarily due to the execution of long-term leasehold interests by wind energy companies.

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Who Owns It?

Canadian investors own the most reported foreign held agricultural and non-agricultural land, with 28 percent, or 7,250,834 acres. Foreign persons from the Netherlands own 19 percent, Germany owns 7, the United Kingdom owns 6 and Portugal owns 5. Together, 9,511,437 acres or 36 percent of foreign-held acres are owned by individuals or entities from these countries.

What Do They Use it For?

Fifty-two percent of the land is timber or forest with cropland accounting for only 19 percent of the total acres. Foreign held pasture and other agricultural land totals 27 percent of all foreign interest holdings in the United States. Nonagriculture land (including homestead and roads commonly reported as part of the agricultural land or land that is idle now, but its last use in the past 5 years was agricultural) accounts for approximately 2 percent.

What Are the Trends?

Between 2007 and 2011, foreign landholdings in cropland and pasture land increased. During this time period, cropland increased from roughly 2,400,000 acres to 4,900,000 acres, and pastureland increased from approximately 4,000,000 acres to 5,900,000. These changes are mostly due to foreign-owned wind companies executing long-term leases on large numbers of acres; however, the acres actually utilized by said companies are very few due to the small footprint of the wind towers erected on the land.

Our Chat With Jeremy Grantham about commodity prices

Our Chat With Jeremy Grantham
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Photograph by Erik Madigan Heck

Jeremy Grantham

JEREMY GRANTHAM’S GOT A TRACK RECORD that’s impossible to ignore—he called the Internet bubble, then the housing bubble. While moves like those have earned the famed forecaster the nickname “perma-bear,” in early 2009 he also told clients at GMO, his $100 billion, Boston-based money-management firm, to jump back into the market. It was the same week that stocks hit their post-Lehman low.

Now, however, the outspoken Yorkshireman, who is chief investment strategist at GMO, is making headlines with a new prediction: Dire, Malthusian warnings about environmental catastrophe. To hear him tell it, the world is running out of food. Resources will only keep getting more expensive. And climate change looms over it all. Indeed, at times he sounds like someone Greenpeace would send door-to-door with a clipboard. (He’s not above likening the coal-industry spin to the handiwork of Goebbels.) If it were anyone else, Wall Street would probably laugh him off. But because it’s Jeremy Grantham, they just might listen.

Q: You’ve been ringing alarm bells about commodity prices. Why all the worry?

A: They came down for a hundred years by an average of 70 percent, and then starting around 2002, they shot up and basically everything tripled—and I mean, everything. I think tobacco was the only one that went down. They’ve given back a hundred years of price decline and they gave it back between ’02 and ’08, in six years. The game has changed. I suspect the game changed because of the ridiculous growth rates in China—such a large country, with 1.3 billion people using 45 percent of the coal used in the world, 50 percent of all the cement and 40 percent of all the copper. I mean these are numbers that you can’t keep on rolling along without expecting something to go tilt.

Q: This led to some surprising conclusions, like your concerns about natural resources most of us have barely heard of.

A: We went through one by one, and we decided the most important, the most valuable and the most critical was phosphate or phosphorous. Phosphorous cannot be made, only placed. It is necessary for all living things. And we are mining it, and it’s depleting. And I like to say, if that doesn’t give you goosebumps, then you’re tougher than me. That is a terrible equation. So I went to the professors, and I said, what’s going to happen, and they said, ‘Oh, there’s plenty of phosphorous.’ But what’s going to happen when it runs out? ‘Oh, there is plenty.’ It’s a really weak argument. We do have a lot, but 85 percent of the low-cost, high-quality phosphorous is in Morocco…and belongs to the King of Morocco. I mean, this is an odd situation. Much, much more constrained than oil in the Middle East ever was—and much more important in the end. And the rest of the world has maybe 50 years of reserve if we don’t grow too fast.

Q: What are investors supposed to do?

A: The investment implications are, of course, own stock in the ground, own great resources, reserves of phosphorous, potash, oil, copper, tin, zinc—you name it. I’d be less enthusiastic about aluminum and iron ore just because there is so much. And I wouldn’t own coal, and I wouldn’t own tar sands. It’s hugely expensive to build coal utilities, and the plants they have to build for tar sands are massive, and before they get their money back I suspect that the price of solar and wind will have come down so much.

So I wouldn’t use that, but I think oil, the metals and particularly the fertilizers, I would own—and the most important of all is food. The pressures on food are worse than anything else, and therefore, what is the solution? Very good farming, which can be done. The emphasis from an investor’s point of view is on very good farmland. It’s had a big run. You can never afford to ignore price and value, but from time to time you can get good investments in farmland, and if you’re prepared to go abroad, you can do it today. I wouldn’t be too risky. I would stay with distinctly stable countries—Australia, New Zealand, Uruguay, Brazil, Canada, of course, and the U.S. But I would look around, in what I call the nooks and crannies. And forestry is the same. Forestry is not a bad bargain, a little overpriced maybe, but it’s in a world where everything is overpriced today, once again, courtesy of incredibly low interest rates that push people into investing. A wicked plot of the Federal Reserve.

Rising Commodities

Total return over 10 years (2003-2013)

[image]Source: S&P Dow Jones Indices

Q: Why is this problem so hard for us to deal with? You’ve railed against short-termism.

A: A career politician has a very short horizon. They’re not really interested in problems that go out five or 10 years. Secondly, you have what they call the discount-rate effect, which is a dollar in 10 years has a much lower value to a corporation than a dollar today. So they’re only interested, at the corporate level, in the short term. And politicians, in the very short term. And you have a vested-interest effect. In other words, it’s very hard to get change when the people who are benefitting very nicely, thank you, from the current situation don’t want it. If the oil industry is making a bundle, which they are, they don’t want to change to a system that recognizes climate change and the need to have a tax on carbon. And they can fund right-wing think tanks, and they do.

So you have vested interests fighting like mad to keep the situation the way it is. And that’s always the case. So change is difficult, and with our politicians with the short-term election problems, it’s nearly impossible. And when they depend so much on campaign contributions, and they find the campaign contributions come so much from the vested interests, the financial world, but more particularly the energy world, it’s a bloody miracle anything gets done.

Q: And that long-term perspective is important, not only to changing society, but also to investing. As an investor, you’re known for that.

A: I like to get what I consider the central idea, which in the stock market is patience and value and mean reversion. And in society, it is resources and climate damage. That’s plenty to go on, and that’s a pretty strong focus. We have a shockingly short horizon in the stock market, as witnessed in the Internet bubble. And we have a shockingly short horizon about social problems, where all we want to hear is how rapid the growth will be and how good everything is.

Q: How about a stock forecast. You called the market’s initial 2009 rally, but by 2010 you were predicting “seven lean years.” So far, however, the market’s soared.

A: And it can go a lot higher than this with the Fed pushing it. And we can have another real bubble. Based on the Fed’s history, that seems to be what they like. You know we had one in 2000 with Greenspan, and then we had a housing bubble and a financial bubble with Bernanke and Greenspan. And it looks like Bernanke is perfectly happy to keep the rates down and watch as stock prices rise. They do that because as the rising stock prices give you a little consumer kick, you feel richer—and then, when you least need it, the whole thing bites you, and the prices go back to fair price or lower, like they did in ’09, and the consumer reacts, and you have a recession and a bad stock market. But they’ve had two of these, and they seem bound and determined to do it a third time. As I’ve said, it’s a workable definition of madness to keep doing the same thing and expect a different result.

Q: Like many Englishmen, you seem to regard Americans as wildly, fool-heartedly optimistic.

A: America is a very, very optimistic-biased society, as I believe, incidentally, Australia is, for whatever that means. We’re the two great optimistic societies. You can have a conversation about a housing bubble in England, and they’ll say, ‘oh, is that right? Let me see the data.’ If you have one in Australia, you have World War III! They hate you. They hate you for years! [laughs] The idea that you could suggest that they were having a housing bubble. [laughs]

Q: So the stereotypes about us are true?

A: Absolutely. Now, it’s been very useful in enterprise, in venture capital…in start-ups. We have more failures here than probably every developed country added together, but in consequence, when the smoke clears, we tend to end up with the Amazons and the Googles. It’s not an accident. We just throw more darts at the dartboard. The Germans are very conservative about throwing darts. We have an admirable risk-taking attitude, and we’re very tolerant of failure.

Q: We benefit from it?

A: Absolutely, but the downside is you’re willing to throw darts because you think you’re going to win. American entrepreneurs all know they’re going to win. Only 10 percent survive, but they all think they’re going to win.

Average Values Up 20% for High-Quality Farmland | Corn and Soybean Digest

An accelerated farmland sell-off at the end of 2012 has led to continued low supplies of premium quality property, according to Farmers National Company, the largest farmland and ranchland real estate company in the country. Last year’s rush, prompted by economic uncertainty and tax law changes, continues to have an impact into 2013. High-quality land is still in demand, and buyers are competing for top acres that are currently in short supply.

Competition for land has kept values strong, averaging 20% higher values over comparable land in 2012. Much of the continued rise is due to auction activity driving sales prices as purchasers vie for parcels of land. Mid- to high-quality properties are still seeing such rises in value, while lower-quality land values are staying steady.

“Values are still going up, but the pace has slowed overall,” says Derrick Volchoff, ALC, vice president of real estate operations at Farmers National Company. “Many transactions for high-quality land are being sold via auction, which drives prices through competitive situations.”

Auctions today have turned very competitive with bidding wars becoming the norm for high-quality land sales. Areas of the country that normally do not run auctions, such as the Delta region, are now seeing them on a regular basis, according to Volchoff.

“Despite an overall moderation in the number of sales transactions since the end of last year, there has been noticeable growth in the size of parcels being sold per purchase,” says Volchoff.

Moving into the third quarter of 2013, Farmers National Company expects the number of transactions being closed to increase, based on activity seen in the past 60 days.

“During the first two quarters of 2013, there has been a hiccup in activity based on the surge at 2012 year-end,” said Volchoff. “However, the trend seems to be shifting upward again and transaction numbers for the balance of the year should remain relatively steady.”

Investors are sticking with land as a safe, long-term investment while farmers are putting cash from past yearly profits back into operations. Built up cash reserves for farmers are prompting farm operators to buy premium land when it becomes available to add to their inventory and to accommodate the return of younger family members to farms. For both groups, economic uncertainty is still driving purchase decisions. Farmers are looking for premium land on which to expand, while investors may purchase properties based on price and projected return on investments.

“Even with recent drops in crop size for farmers, profits are still at a level higher than in 2010,” said Volchoff. “Farm debt is still low in relative historical terms.”

According to Volchoff, several issues in the U.S., such as healthcare and interest rates, are likely to impact economic trends and thus land inventory levels and sales activity once they are resolved. The direction of market and political issues will likely shape the rest of 2013. As the housing market improves, developers will likely begin to buy land for development. This could trigger more 1031 tax deferred exchanges pushing new money into the market.

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Wells Dry, Fertile Plains Turn to Dust – NYTimes.com

Wells Dry, Fertile Plains Turn to Dust

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Near Garden City, Kan., the High Plains Aquifer is giving out.

Matthew Staver for The New York Times

By MICHAEL WINES

May 19, 2013

HASKELL COUNTY, Kan. — Forty-nine years ago, Ashley Yost’s grandfather sank a well deep into a half-mile square of rich Kansas farmland. He struck an artery of water so prodigious that he could pump 1,600 gallons to the surface every minute.

Last year, Mr. Yost was coaxing just 300 gallons from the earth, and pumping up sand in order to do it. By harvest time, the grit had robbed him of $20,000 worth of pumps and any hope of returning to the bumper harvests of years past.

“That’s prime land,” he said not long ago, gesturing from his pickup at the stubby remains of last year’s crop. “I’ve raised 294 bushels of corn an acre there before, with water and the Lord’s help.” Now, he said, “it’s over.”

The land, known as Section 35, sits atop the High Plains Aquifer, a waterlogged jumble of sand, clay and gravel that begins beneath Wyoming and South Dakota and stretches clear to the Texas Panhandle. The aquifer’s northern reaches still hold enough water in many places to last hundreds of years. But as one heads south, it is increasingly tapped out, drained by ever more intensive farming and, lately, by drought.

Vast stretches of Texas and Kansas farmland lying over the High Plains Aquifer no longer support irrigation.

Vast stretches of Texas farmland lying over the aquifer no longer support irrigation. In west-central Kansas, up to a fifth of the irrigated farmland along a 100-mile swath of the aquifer has already gone dry. In many other places, there no longer is enough water to supply farmers’ peak needs during Kansas’ scorching summers.

And when the groundwater runs out, it is gone for good. Refilling the aquifer would require hundreds, if not thousands, of years of rains.

This is in many ways a slow-motion crisis — decades in the making, imminent for some, years or decades away for others, hitting one farm but leaving an adjacent one untouched. But across the rolling plains and tarmac-flat farmland near the Kansas-Colorado border, the effects of depletion are evident everywhere. Highway bridges span arid stream beds. Most of the creeks and rivers that once veined the land have dried up as 60 years of pumping have pulled groundwater levels down by scores and even hundreds of feet.

On some farms, big center-pivot irrigators — the spindly rigs that create the emerald circles of cropland familiar to anyone flying over the region — now are watering only a half-circle. On others, they sit idle altogether.

Two years of extreme drought, during which farmers relied almost completely on groundwater, have brought the seriousness of the problem home. In 2011 and 2012, the Kansas Geological Survey reports, the average water level in the state’s portion of the aquifer dropped 4.25 feet — nearly a third of the total decline since 1996.

And that is merely the average. “I know my staff went out and re-measured a couple of wells because they couldn’t believe it,” said Lane Letourneau, a manager at the State Agriculture Department’s water resources division. “There was a 30-foot decline.”

Kansas agriculture will survive the slow draining of the aquifer — even now, less than a fifth of the state’s farmland is irrigated in any given year — but the economic impact nevertheless will be outsized. In the last federal agriculture census of Kansas, in 2007, an average acre of irrigated land produced nearly twice as many bushels of corn, two-thirds more soybeans and three-fifths more wheat than did dry land.

Farmers will take a hit as well. Raising crops without irrigation is far cheaper, but yields are far lower. Drought is a constant threat: the last two dry-land harvests were all but wiped out by poor rains.

In the end, most farmers will adapt to farming without water, said Bill Golden, an agriculture economist at Kansas State University. “The revenue losses are there,” he said. “But they’re not as tremendously significant as one might think.”

Some already are. A few miles west of Mr. Yost’s farm, Nathan Kells cut back on irrigation when his wells began faltering in the last decade, and shifted his focus to raising dairy heifers — 9,000 on that farm, and thousands more elsewhere. At about 12 gallons a day for a single cow, Mr. Kells can sustain his herd with less water than it takes to grow a single circle of corn.

“The water’s going to flow to where it’s most valuable, whether it be industry or cities or feed yards,” he said. “We said, ‘What’s the higher use of the water?’ and decided that it was the heifer operation.”

The problem, others say, is that when irrigation ends, so do the jobs and added income that sustain rural communities.

“Looking at areas of Texas where the groundwater has really dropped, those towns are just a shell of what they once were,” said Jim Butler, a hydrogeologist and senior scientist at the Kansas Geological Survey.

The villain in this story is in fact the farmers’ savior: the center-pivot irrigator, a quarter- or half-mile of pipe that traces a watery circle around a point in the middle of a field. The center pivots helped start a revolution that raised farming from hardscrabble work to a profitable business.

Since the pivots’ debut some six decades ago, the amount of irrigated cropland in Kansas has grown to nearly three million acres, from a mere 250,000 in 1950. But the pivot irrigators’ thirst for water — hundreds and sometimes thousands of gallons a minute — has sent much of the aquifer on a relentless decline. And while the big pivots have become much more efficient, a University of California study earlier this year concluded that Kansas farmers were using some of their water savings to expand irrigation or grow thirstier crops, not to reduce consumption.

A shift to growing corn, a much thirstier crop than most, has only worsened matters. Driven by demand, speculation and a government mandate to produce biofuels, the price of corn has tripled since 2002, and Kansas farmers have responded by increasing the acreage of irrigated cornfields by nearly a fifth.

At an average 14 inches per acre in a growing season, a corn crop soaks up groundwater like a sponge — in 2010, the State Agriculture Department said, enough to fill a space a mile square and nearly 2,100 feet high.

Sorghum, or milo, gets by on a third less water, Kansas State University researchers say — and it, too, is in demand by biofuel makers. As Kansas’ wells peter out, more farmers are switching to growing milo on dry land or with a comparative sprinkle of irrigation water.

But as long as there is enough water, most farmers will favor corn. “The issue that often drives this is economics,” said David W. Hyndman, who heads Michigan State University’s geological sciences department. “And as long as you’ve got corn that’s $7, then a lot of choices get made on that.”

Of the 800 acres that Ashley Yost farmed last year in Haskell County, about 70 percent was planted in corn, including roughly 125 acres in Section 35. Haskell County’s feedlots — the county is home to 415,000 head of cattle — and ethanol plants in nearby Liberal and Garden City have driven up the price of corn handsomely, he said.

But this year he will grow milo in that section, and hope that by ratcheting down the speed of his pump, he will draw less sand, even if that means less water, too. The economics of irrigation, he said, almost dictate it.

“You’ve got $20,000 of underground pipe,” he said. “You’ve got a $10,000 gas line. You’ve got a $10,000 irrigation motor. You’ve got an $89,000 pivot. And you’re going to let it sit there and rot?

“If you can pump 150 gallons, that’s 150 gallons Mother Nature is not giving us. And if you can keep a milo crop alive, you’re going to do it.”

Mr. Yost’s neighbors have met the prospect of dwindling water in starkly different ways. A brother is farming on pivot half-circles. A brother-in-law moved most of his operations to Iowa. Another farmer is suing his neighbors, accusing them of poaching water from his slice of the aquifer.

A fourth grows corn with an underground irrigation system that does not match the yields of water-wasting center-pivot rigs, but is far thriftier in terms of water use and operating costs.

For his part, Mr. Yost continues to pump. But he also allowed that the day may come when sustaining what is left of the aquifer is preferable to pumping as much as possible.

Sitting in his Ford pickup next to Section 35, he unfolded a sheet of white paper that tracked the decline of his grandfather’s well: from 1,600 gallons a minute in 1964, to 1,200 in 1975, to 750 in 1976.

When the well slumped to 500 gallons in 1991, the Yosts capped it and drilled another nearby. Its output sank, too, from 1,352 gallons to 300 today.

This year, Mr. Yost spent more than $15,000 to drill four test wells in Section 35. The best of them produced 195 gallons a minute — a warning, he said, that looking further for an isolated pocket of water would be costly and probably futile.

“We’re on the last kick,” he said. “The bulk water is gone.”