Fortune smiled on rural Minnesota in 2007, as median farm income soared 73 percent in a year, to $105,000, on runaway demand for corn, milk, wheat and soybeans.
A University of Minnesota survey of 2,600 farms concluded that it was the most profitable year for the state's farmers since 1973.
"We're in one of those golden ages of agriculture," said Dale Nordquist, associate director of the Center for Farm Financial Management at the university, which does the annual survey.
The agricultural boom comes as Congress nears completion of a farm bill that will likely continue huge subsidies to farmers, no matter how successful their current crops. This year alone, the government expects to pay $13 billion to farmers who grow one of five major commodities, including corn, soybean and wheat.
Skyrocketing farm income will bolster subsidy critics who say they are unnecessary and wasteful.
And it comes as the general public has become acutely aware of rising food costs as prices have jumped in recent months for milk, eggs and others staples.
Farm income has been rising for several years now, not just in Minnesota. Farmers nationwide will make $92.3 billion this year, according to the U.S. Department of Agriculture, up $3.6 billion from last year. That's $30 billion more than the average of the past 10 years.
Huge jumps most everywhere
The bonanza was yet more evidence of the extraordinary demand on farms as ethanol and surging global appetites have outstripped the farmers' ability to supply markets.
Dairy farms saw median income rise 141 percent, according to the survey. Crop farmers were up 68 percent, and beef farmers were up 151 percent. Hog farmers, meanwhile, stuck with ever-rising bills for their feed and a flat pork market, suffered through a miserable year, dropping 58 percent to a median farm income of $65,720.
Far from sparking celebrations across farm country, rising profits have put worry into the minds of farmers who fear ever-rising seed, feed, fertilizer and land costs will jump again to meet higher incomes. Farm costs rose from an average $449,248 to $515,400 last year, according to the survey.
"We can easily be our own worst enemy," said Lance Peterson, a soybean farmer in Underwood, and president of the Minnesota Soybean Growers Association.
Costs rising for farmers
Farmers will be tempted to raise more crops under the assumption that the current market conditions will last, creating a run on land that will pump up land rents and wipe out the farmer's profit margins. Peterson's farm cost $250 an acre to run three years ago, but hovers above $400 today, he said. His crop insurance covers 70 percent of losses, meaning a drought could cost him much more than it has in the past.
"The biggest thing is the amount of risk it has added to my operation," he said.
Farmers' costs are rising across the board, said Dan Davidson, staff agronomist at DTN in Omaha, a news and information agency. Seed is up 20 percent, chemicals 10 percent, fertilizer 50 percent, fuel 50 percent and land 15 to 20 percent.
"This is being driven by the fact that commodity prices are being driven up," Davidson said. "Corn and soybeans are double what they were 18 months ago."
A government forecast said food inflation, after rising 5 percent 2007, should continue at about 4 percent this year, with some foods climbing higher.
State Agriculture Commissioner Gene Hugoson agreed that prices are high, but said he's baffled by the public's seeming indifference to skyrocketing oil prices.
"There's no doubt about it that the farmers have made some money here, but there's a lot more effect on food prices due to oil prices than from raw-materials prices. Why aren't people protesting the oil company profits or Middle Eastern embassies?" he asked.
But how long food inflation lasts depends on a thicket of forces, including one never before seen in agriculture: hedge funds. The agriculture markets have seen the arrival of billions of dollars from investment managers who sensed opportunity as first corn and then wheat and soybean futures prices jumped during the ethanol boom.
Today, hundreds of billions of dollars in the agriculture marketplace come from people far outside the food chain, and market decisions made by some of the fund managers can have as large an effect on prices as traditional supply-and-demand forces, said Peterson, of the soybean association.
"It's an outside influence on the market that no one had envisioned," he said.
The agriculture markets have become so topsy-turvy this year that the U.S. Commodity Futures Trading Commission plans a conference next month at its Washington headquarters to study the causes.
Matt McKinney • 612-673-7329