According to Prof. Eric Thompson, growth of the global middle class and an efficient agricultural production cluster have combined to create a sustained expansion in incomes and land prices in the Upper Midwest. Thompson is Director of the Bureau of Business Research at the University of Nebraska-Lincoln, and recently addressed the Quarterly Economic Forecast Conference at Georgia State University.
“The demand for agricultural goods will grow faster than the supply in the developing world, and the Upper Midwest is well-positioned to capture these export opportunities,” says Thompson. Why? The existing presence of an agriculture production cluster and the region’s resilience to climate change.
Nebraska is in the center of the nation’s breadbasket and has more irrigated acres (9 million) and commercial red meat production than any other state, and is tied for first in cattle-on-feed. They’re ranked in top five for production of corn-based ethanol, grain corn, soybeans and hay. Thompson calls it “Nebraska’s Golden Triangle.”
So far as weather resilience, this region sits the most stable aquifer in North America. Of the four published climate change scenario forecasts, the region is projected to yield financial gains in three of them, if they occur.
State farm income growth in the Upper Midwest between 2003-2012 have exceeded 116 percent in all but one state (KS), with the high of 353 percent recorded in Minnesota. Farm land values have risen accordingly, with average price going from $1,340/acre to $3,050/acre between 2009 and 2013.
How does this benefit Midwest bankers?
More capital investments are expected in the region that will directly benefit agriculture input (fertilizer, fuel, hardware, etc.) and heavy machinery suppliers. The retail and service businesses that support these supply chains will all benefit from this expansion, and the Midwest banking sector will facilitate this growth with capital to buy equipment and develop new property.
Add anyone’s economic expansion multiple to this mix and it’s apparent that the region can expect a widespread financial boom as they meet the growing demand to feed the world’s growing population.
In summary, America’s heartland looks to be in good shape for a decade of growth and prosperity and the region’s bankers should be in lockstep funding these opportunities with farm land and CRE loans, equipment leases, SBA loans and plenty of working capital.