Thursday, August 21, 2008

Washington Post: In Farm Country's Boom, Hint of Bubble

I've said while there is a recession going on in this country on Main Street, it's a regional recession. I expect readers from certain parts of the country like Iowa, Nebraska, parts of Texas, Wyoming, Saskatchewan (the 52nd state) to wonder what all the fuss is about. [Mar 12: Grain Boom May Spark Rural Revival] We have a big country and different micro economies; obviously those dependent on natural resources have sort of been mini Brazil's. The Washington Post has an interesting article on some items we've touched on in the past...
  • The trucks rumble down the main drag of this farm town all day long, the ones heading east brimming with grains of No. 2 Yellow Corn, the ones going west filled with Sweet Bran, a cattle feed that looks like breakfast cereal and smells like warm beer. That eighteen-wheeled evidence of prosperity shows why the Plains states are a bright spot in the otherwise gloomy national economic picture. Here, the housing market is holding up just fine, the banks are making plenty of loans, and employers keep adding jobs.
  • The numbers are gloomiest for Sun Belt states with eviscerated housing markets, and there, interest rate cuts and stimulus checks are helping ease the pain. But in the area stretching from the oilfields of Texas north to the Dakotas, where the economy is holding up fairly well, those government actions may prove unnecessary -- and even contribute to new bubbles.
  • The price of farmland in Nebraska has doubled in the past three years, primarily reflecting the boom in commodity prices. The increase also reflects the impact of rate cuts by the Federal Reserve that enabled buyers to bid up land with borrowed money. (sounds familiar! As I keep saying we with our 'nearly free money' policies we go to each time a crisis emerge, we are setting ourselves up for the next bubble) :)
  • Corn has risen to nearly $6 a bushel, from around $2 in 2005; earlier this summer it was as high as $7.50. For an average-sized Nebraska farm with an average yield, that means an extra $900,000 in revenue (though that has been offset significantly by higher costs for fertilizer and fuel).
  • "People on the East Coast and West Coast are seeing their food bill rise, well, a lot of that increase is ending up here," said Ernie P. Goss, an economist at Creighton University in Omaha.
  • The jobless rate in Nebraska was 3.4 percent in July, barely up from 3.1 percent a year before. The national rate rose to 5.7 percent from 4.7 percent in that span.
  • The availability of loans to farmers is the strongest it has been in five years, according to a survey by the Federal Reserve Bank of Kansas City, even as banks nationwide are becoming reluctant to lend money. The reason: There wasn't much overbuilding of housing here, so most regional banks are not saddled with the same bad mortgage and construction loans as their counterparts on the coasts.
  • That prosperity also shows itself on Lyle Schjodt's farm a few miles outside Blair, where he farms 1,000 acres of corn and soybeans, 150 head of cattle, and 1,200 hogs. He still has the first tractor he ever bought, back in 1968, in a shed. "I've been farming for 39 years, and I haven't seen a better year than this one," he said.
  • Schjodt is upgrading his equipment; he just ordered a $120,000 Case IH planter, a massive red device that deposits seed corn every seven inches in 30-inch-wide rows. He bought a new $50,000 Ford F-350 back in the spring, too.
  • The government stimulus bill passed in February included provisions that will let him depreciate the value of those big-ticket purchases immediately. "They're some pretty attractive write-offs," Schjodt said. "It will get my tax bill down a lot in what's looking to be a real good year for income. I just wanted to take advantage of that."
  • Not long ago, you could show up and buy a new tractor off the lot; now there is a 10-month backlog.
  • Nationally, truck sales are battered by skyrocketing fuel costs. But auto sales are up 8 percent in the Omaha area so far this year, according to sales tax receipts.
  • Wal-Mart has scaled back on its expansion plans nationally, but it is in negotiations to build a new store in Blair, which is about 35 miles northwest of Omaha. Several other retailers are opening nearby.
  • The good times are not uniform across the region; ranchers have been pummeled by high prices for feed and fuel, and there has been flooding in Iowa.
[Jun 5: NYTimes: Farmland is Gold, So Billions Invested in Farming]

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