The Wall Street Journal-20080215-Cash Crop- Heartland Sees Boom With Grains In Demand

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Cash Crop: Heartland Sees Boom With Grains In Demand

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ALBION, Neb. -- The U.S. economy may be teetering on the brink of recession. But there's a bountiful harvest down on the farm.

Grain prices are surging to historic levels. Spring wheat, a variety often used in bread, hit a record $18.53 per bushel yesterday. Corn is trading above $5 and soybeans are bringing in more than $13, all 25% or more above their year-ago prices.

Net farm income is expected to hit $92.3 billion in 2008 -- a 51% increase over the 10-year average of $61.1 billion. Across much of the Great Plains, unemployment rates are well below national figures and housing markets remain robust. Robert Moskow, a food industry analyst at Credit Suisse, has proclaimed this the "golden age" of agriculture.

The new era owes largely to a surge in crop demand from biofuels producers and the growing demand for grains in places like China and India. With inventories strained, "We're not going to go back to $2.10-per-bushel corn," says Mike Helmar, director of industry services at Moody's Economy.com.

While the boom is reversing decades of decline in U.S. rural areas at an otherwise vulnerable time, it's also pushing global food costs higher. International wheat prices in January were up by 83% from a year ago, according to a new report from the Food and Agriculture Organization of the United Nations. Scarce and costly grains -- especially staples like rice, wheat and corn -- have caused riots in poor nations such as Senegal and Mexico, says the group.

Here in Albion, a central Nebraska farm town of fewer than 2,000, such problems seem worlds away.

People are building new, outsized homes or renovating existing ones. A new ethanol plant has created 55 jobs and a full-time dentist is on the way. A fine-jewelry store moved here in November and a coffee shop run by farmers' wives -- charging Starbucks prices in a town where coffee used to come in a Styrofoam cup -- just celebrated its first anniversary.

"There's a buzz in Albion," says Brad Beckwith, a 55-year-old corn and soybean farmer. Although he now faces higher rents for land and higher prices for seed, fertilizer and fuel, he's still turning a profit.

"Farmers have a lot of money to spend," says Jerry Carder, a 49- year-old Albion corn and soybean farmer who recently bought a $40,000 2008 Mercedes-Benz ML350. Business for Mr. Carder has been steady in the past but has spiked in the past two years as grain prices have risen.

Still, rural America remains such a small slice of the U.S. population -- and agricultural production just a sliver of the country's output -- that the strong farm economy can't do much to offset weakness in the broader economy.

"The agricultural economy will help keep afloat some of the rural areas and it will spill over, to some extent, to the...manufacturing and service industries," says David Oppedahl, a business economist at the Federal Reserve Bank of Chicago. "But it probably will not be large enough to cushion a recession in a broader setting."

Many farmers are finding more money in their pockets at the same time that federal subsidies -- historically a main source of their income -- have remained largely in place. A new farm bill under consideration in Congress doesn't call for any major overhauls, although it could place caps on subsidies that the nation's wealthiest farmers receive.

Despite healthy prices for corn and soybeans, many farmers, including Mr. Beckwith, think the subsidies are still necessary. "Something has to be in place, I feel, if [the grain market] turns," he says. "It's gone up so fast, what's to say it won't go down fast, too?"

For now, he's enjoying the ride. Mr. Beckwith and his wife bought a 4,000-square-foot house in August for $339,000. Since buying it, they've converted a bedroom into a formal dining room, finished the spacious basement to include a full kitchen and bar and installed a flagstone patio and hot tub. The finishing touch: a 65-inch television.

Good times haven't sprouted for all farmers. Steep crop prices have made life more difficult for livestock farmers who must buy corn and other grains to fatten their cows and pigs.

"We're really blessed in Boone County with the farm economy," says Hank Thieman, chairman of the Boone County Commissioners. "Right now, if you're raising hogs, it's hard, but if all you're raising are corn and soybeans, you're on easy street."

Kent Stowell, who grows soybeans, corn, wheat and alfalfa outside Vliets, Kan., says a lot of people in his area are buying new tractors and combines. He just purchased his first new washing machine in 30 years and is about to buy a 2008 Ford pickup, his first new vehicle in six years.

Corey Lee, a Chevrolet dealer in Frankfort, Kan., population 900, sold 10 cars in December, compared with three in December 2006. And the first 2008 Corvette he sold went to a farmer. "The rest of the economy isn't doing well but it doesn't seem to bother these guys much."

The first thing visitors see upon arriving in Albion from the south and west are huge plumes of steam rising from the VeraSun ethanol plant that opened in October. State highway 91 cuts through the town, which is surrounded by thousands of acres of corn and soybean fields. On a hill overlooking Albion, new McMansions are sprouting up. In town, older homes are being renovated and expanded.

This Boone County seat attracts residents for government services from across the 687-square-mile county. The hospital draws people from five counties. Downtown Albion is bustling during the day with people placing orders at the flower shop, eating lunch and shopping for groceries.

Farmers are taking this opportunity to invest in their businesses. Some are paying down debt while others are taking out new loans to pay for rent and other costs ahead of the harvest. Cornerstone Bank's Albion branch is gaining customers and saw 9% growth in its agriculture-heavy loan portfolio in 2007 versus the year before.

"Our loan demand will be as strong for the grain farmer this year as it was last year," says Wayne Boilesen, president of Cornerstone's Albion branch.

Things haven't always been this good.

The town of Albion was founded in 1872 and its population swelled to 600 when a railroad was constructed there several years later. By 1950, the population had grown to a peak of 2,132. Soldiers were back from the war and there wasn't much migration from rural areas because interstate highways were just starting to be built.

But Albion's population has been declining ever since, as young people have moved to bigger cities in search of work and small farms have been bought up by bigger ones. In 2006, the population of Albion was 1,651, although that figure doesn't include people who live just outside the Albion city limits, where the new homes are going up.

Just a couple of years ago, there were some empty storefronts in town. Tim Kayton, 48, a fourth-generation farm-equipment dealer who grew up 20 miles away, has been working to make sure Albion doesn't go the way of so many other rural communities.

In 1997, he and a few other residents formed the Albion Economic Development Corporation in an effort to attract businesses to town. The first thing they did was push for the creation of an Albion sales tax, which voters approved in 1998.

The economic development corporation collects a quarter of the 1% tax and uses the money to attract businesses and services by providing low-interest loans and helping new businesses buy or upgrade buildings.

Efforts to lure new businesses have begun to pay off in the past two years as the empty storefronts have filled in with new tenants. "Towns die if no one pushes for them," Mr. Kayton says.

Mr. Thieman says the county's property-tax base has grown as new businesses have opened and more homes have been built -- particularly in Albion. The additional revenue has enabled the county to boost the budget of its road department 8% to $2 million.

Until recently, people who wanted to splurge on fine jewelry had to drive an hour. Dan Willis, owner of Heartland Jewelry in Aurora, a town 60 miles to the south, had some good customers from Albion and was approached about opening a store there by the Boone County Development Agency. He set up his Albion store in November, where he sells $50 sterling-silver pieces and $4,000 diamond rings.

Designer coffee has also come to town. Sisters Kristi Weidner and Cindy Kurtenbach are owners of the Brewed Bean, a specialty coffee shop that serves lattes and frozen drinks for about $3 apiece. At first, "People thought we were crazy," Ms. Weidner says. But there's a steady flow of customers at the coffee shop, and this January, the Brewed Bean rang up about $150 more in sales per day than it did last January.

Although prices for many crops are at record highs, some communities are too far gone to reap the benefit.

Just 20 miles southwest of Albion, in the 400-person town of Cedar Rapids, storefronts are shuttered, some houses are in ruins, the school population is declining and the local grocer is struggling to stay afloat.

"We had hopes that from the ethanol plant in Albion, we'd gain some people, but we've only gained one family," says Kim Schilousky, village clerk for Cedar Rapids. "Our meat-locker plant closed last year, which hurt us, and we have a housing problem."

Farmers in Albion and elsewhere know they're not completely immune from such issues. For now, they're counting on the farm economy to remain strong enough to keep their towns going.

"The biggest concern right now is whether we're in a world recession or not," says Bill Talsma, who farms 9,000 acres of corn and soybeans in Newton, Iowa. "If the whole economy shuts down it could clear through the grain and livestock industry. If we quit exporting U.S. products and money starts drying up in other countries, people will have less to spend on pork and grain."

For that reason he hasn't been rushing out to spend his money. But, he says, "I might update one of my Harleys."