Midwest ag sector is economy's bright spot
- Article by: JOSHUA ZUMBRUN and S TEVE MATTHEWS Bloomberg News
- November 26, 2010 - 8:59 PM
The unemployment rate in North Dakota is 3.7 percent, and "if it wasn't for cable news, we probably wouldn't have any idea that the rest of the country was any different," said Doug Johnson, co-owner of crop insurer TCI Insurance in West Fargo, who added six new employees this year.
As businesses across the country struggle to recover from the deepest recession since World War II and the national jobless rate remains stuck at 9.6 percent, Johnson has benefited from his location in the northern Great Plains, where a boom in commodities, such as wheat and soybeans, is helping to create jobs, lift farmers' incomes and fuel demand for goods ranging from John Deere tractors and Agco Corp. combines to dinners at local restaurants.
The agricultural Midwest -- particularly North and South Dakota, Kansas and Nebraska -- has been leading the economic recovery as its banks, businesses and households avoided the worst of the housing bubble's collapse and the financial crisis that followed.
Now the region is getting a further boost from record exports of commodities, driven by demand in China and Russia and a declining dollar. Farm shipments next year may surpass the 2008 record of $115.3 billion, Joe Glauber, the Department of Agriculture's chief economist, said last month.
"This has been the brightest spot in the U.S. economy throughout the recession, the only part of the country that has held up reasonably well," said Mark Zandi, chief economist at Moody's Analytics Inc. "The rise in commodities prices has been a very significant tailwind for the entire region," as strong demand worldwide drives sales of products, including agricultural equipment, financial services and fertilizer.
"It goes beyond the farm itself," Zandi said.
Ray Gaesser, 58, who grows soybeans and corn near Corning, Iowa, says he installed new drying and grain-handling equipment this month and may buy tractors, combines or planters next year.
"We are in a cycle that is good for agriculture right now," he said. "We are pretty optimistic."
North Dakota and two other states in the region had the nation's lowest unemployment rates during September, with South Dakota at 4.4 percent and Nebraska at 4.6 percent. These are also the three states with the largest share of gross domestic product from agriculture: 10.9 percent for North Dakota, 9.4 percent for South Dakota and 6.8 percent for Nebraska, according to the Bureau of Economic Analysis.
North Dakota and Nebraska will help lead the nation in job creation next year, according to Moody's, which estimates that their nonfarm payrolls will grow by 1.53 percent and 1.35 percent, the third and seventh best rates in the country.
"Obviously the economy in North Dakota did not put a stop to our plans" for expansion, said Johnson, who now employs 23 people at his crop-insurance company.
Farmers have done "extraordinarily well," said Ann Duignan, an analyst at J.P. Morgan Chase. "With high commodities and low inputs, you're looking at significant margins and that means a big splurge of spending into the yearend."
Agriculture fared better than other sectors of the U.S. economy during the recession, as an expanding world population and growth in emerging economies supported demand for crops. China was a net importer of corn last year for the first time since 1996, even as its government sold state-owned inventories.
The dollar has declined 7.3 percent in the second half of the year as food prices surged after cold in China, drought in Russia and parts of Europe, and flooding in Canada damaged harvests. The spot price of corn has gained 46 percent since July 1, wheat is up 28 percent and soybeans have risen 25 percent.
Farm incomes will climb this year to $77.1 billion, 19 percent higher than the 2000-2009 average of $64.8 billion, the USDA forecast in August.
The increase "is absolutely very important to the broader economy," said Ernie Goss, a professor of economics at Creighton University in Omaha. "Truck sales are up because farmers are buying trucks. That benefits local auto dealerships. And that creates spending money at the local Pizza Hut."
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