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Melon seeds can be planted on farmland. Over time, they grow into a stem and produce a melon on any adjacent dirt, grass or farmland block. If a melon is already occupying an adjacent spot, the stem will not grow any more melons until the melon is removed. When a melon grows on farmland it turns into a regular dirt block. A single stem can grow an unlimited number of melons.
Melon seeds take a longer time to grow than other crops, and breaking a melon block yields 3-7 melon slices which can be used as a reliable food source. Melon blocks only grow when no opaque block is directly above the stem. Melon seeds, as with other seeds, need a certain amount of light to grow. A torch seems to be the minimum lighting needed. redstone torches or very little light cause the seeds to pop out of the ground and can be picked up again.
Melon seeds can be farmed by using the aforementioned method. This is because when the seeds pop out of the ground because of low lighting, they may occasionally return 2 seeds to the planter. As of the release of 1.0.0, Melon Seeds are affected by bone meal only in the first stage of growth, not once they are a yellow stem.
Additional information regarding farming melons can be found under Melon Farming.
An automatic melon farm can be created using pistons. Placing melon seeds, empty dirt, and pistons in a particular fashion can ensure that melons grow in front of pistons, so when activated, the pistons break the melons. The melon slices will then be forced forward. By placing a water channel directly in front of the melons, you can build a system that will deliver the melon slices to you by water.
NOTE: If you are creating an automated farm in an enclosed space, such as underground, a melon plant requires a transparent block above it to spawn a melon in an adjacent block. This does not apply to the melon block itself, which will grow normally with a block above it.