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Farmers Reap Big Profits From High Food Prices

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By JOSHUA FREED and ASHLEY M. HEHER

The Associated Press

Published: May 28, 2008

WILLMAR, Minn. - The steepest run-ups in food prices since 1990 are hurting grocery shoppers, restaurants and school cafeterias, but they're making others rich.

The winners in the new food economy include crop farmers selling corn and wheat for near-record highs after years of crushingly low prices. Ingredient makers such as Cargill and ADM are rife with profit. Fertilizer and tractor companies are cashing in. Hedge funds that made big bets on rising wheat, soy and corn were spectacularly correct. Oil and gas companies, too - it takes natural gas to cook those Wheaties and diesel to haul them across the country.

Travel along the nation's food chain and you'll find some of the biggest profits closest to the land. The nation's farmers, who raise everything from cows to cucumbers, saw their average household income climb about 7 percent last year to more than $83,000. But in grain-rich states, the results were dramatically higher. In Minnesota alone, the median income for crop farmers soared 80 percent, to $95,000.

Farmers Know Best

That brings us to Chad Willis.

Willis raises corn and soybeans on 550 acres near Willmar, some of the nation's best corn-growing country.

He sells his grain nine miles up the road from an ethanol plant he invested in. His family cars are powered by an 85 percent blend of the corn-based fuel. His black and gold-trimmed cap reads "E85 Everywhere." And he knows that grocery shoppers jolted by higher prices for cereal or eggs or chicken think it's because of ethanol, which consumed 20 percent of last year's corn crop.

Willis isn't saying how much he made last year. Although he acknowledges these are good times to be a farmer, he says he's not pulling in as much as the median income for crop farmers.

"Most people are excited, yes, but cautious about when things are going to turn around, and how hard it's going to turn around," he said.

In between Willis' farm and town, the owners of Haug Implement are having some of the best times anyone can remember. The Deere & Co. dealer sells farm tractors that can run to $160,000 or more and combines that can cost $300,000, a major investment even in the best of times.

Normally Haug would still be taking orders for combines for delivery for the fall harvest. But Deere cut off new orders in mid-November because demand was so high.

Owner Donald Haug Jr. said it wasn't long ago that he couldn't close on new equipment unless he narrowed the gap between trade-in and the sale price to $10,000.

"We're seeing some substantial purchasing, and we're talking over $100,000, and the guy just strokes the check for it," he said.

Grain Farmers Having Good Year

The boom times in farm country have arrived. Corn, soybean and wheat prices have been pushed at or near record highs by a combination of high demand and new money from hedge fund traders who used to show little interest in those markets. Over the past 20 years, Minneapolis Grain Exchange trading volume has risen almost six-fold to a new record last year. The run-up is because, in the frenzied trading, the same commodities are changing hands far more than they used to.

"Grain farmers are making a hell of a lot of money," said Peter Georgantones, president of Investment Trading Services, a commodities brokerage in Bloomington, Minn. "I got grain farmers - a ton of them - who are going to improve their net worth this year - net, now - by a half a million bucks minimum. For one year. That's a nice gain. Not to mention their land's worth more."

Although virtually all businesses are contending with higher energy costs, the rising commodities prices are proving to be bottom-line boosters for other sectors, too.

Other Agriculture Arms Making Money

Profit at seed and pesticide maker Monsanto reached nearly $1 billion last year - a 14-fold increase since 2003. Profit has tripled to $1.1 billion at agrichemical maker Syngenta, and agriculture divisions of DuPont Co. and Dow Chemical Co. have also seen their earnings balloon.

Cargill, which makes ingredients and trades in commodities markets, boosted its profit to $2.3 billion, up nearly sixfold since 2001.

Meanwhile, profit at agricultural processor Archer Daniels Midland Co. has more than quadrupled to $2.16 billion during the same period.

Fertilizer makers are winning big, too.

Mosaic Co. saw its third-quarter profit jump tenfold to $520.8 million because strong demand from farmers is giving it power to raise prices.

"Everybody is getting their little piece. Everybody wants a piece of the pie," said Lee Richardson, a 37-year-old farmer from Willards, Md.

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