Minnesota economy buffeted by crosscurrents

High food prices benefit farmers
High food prices are a double-edged sword for the state’s $6 billion agriculture industry. While consumers have been stretched, farmers are getting good prices for their crops. And some farmers turned to the futures market to hedge against the rising cost of fuel before oil prices surged in the spring.

The conflicting interests on food prices have blurred the issue of farm policy and left many Minnesotans unsure of whom to vote for, according to Clay Richards, assistant director of the Quinnipiac University Polling Institute.

“That’s one of the mysteries of this campaign I think for them so far,” he said. “They’re not really sure who has the better policies that would affect them on crop prices and farm policy."

Corn prices are also getting a boost from increased ethanol production in a state that has taken an early lead in developing renewable sources of energy. Minnesota has set an aggressive target of generating 25 percent of its electrical power from renewable sources by 2025, giving a major boost to development of wind energy. Minnesota is the third-largest generator of wind energy in country, according to Kirsten Morell, a spokeswoman for the state’s Department of Employment and Economic Development.

There are other bright spots for the state’s economy. The banking and financial services industries, concentrated largely in the Twin Cities, have dodged much of the credit crunch that has swamped many big U.S. banks with losses. And while other states in the industrial Midwest have struggled with a loss of manufacturing, a weak dollar has boosted U.S. exports and given Minnesota’s economy a lift, according to Rob Grunewald, a regional economic analyst at the Federal Reserve Bank of Minneapolis.

Farmers in a tough spot
“It’s not a traditional large industrial manufacturing state,” he said. “But to the extent there’s a lot of custom manufacturing and a strong medical device manufacturing sector that areas has helped the state economy.”

Minnesota's economy has been less fortunate when it comes to the nationwide downturn in housing. The state is home to several large building products companies, including window and door makers Andersen and Marvin.

Locally, the housing market hasn’t been hit as hard as once-hot spots like California and Florida. Statewide, roughly one home in every 400 was at some stage in the foreclosure process in the second quarter, about the national average, according to RealtyTrac.

But while home prices are slumping, prices of farmland are soaring, driven by rising crop prices and continued expansion of the suburbs into rural areas. The value of farmland rose by more than 13 percent in 2007 and is expected to grow by nearly 15 percent in 2008, according the the Department of Agriculture.

That has put some farmers — and would-be farmers — in a difficult position.

Just a few years out of college, Matt Schruers wrote to msnbc.com to say that he feels less secure financially than when he was in college, even though his income is much higher. Schruers works for an agricultural lender in Marshall, Minn., about three hours southwest of Minneapolis. With a wife and 18-month-old son, he’s hoping to get his start as a farmer, but for now those plans are on hold. In addition to the steep rise in prices for farmland, lenders are looking for sizable down payments — as much as half the property value — before approving a loan.

“Someone in my position coming out of college trying to get into farming, there’s no way that you can afford to buy a piece of land right now — unless you happen to buy from a family member who’s going to give you a steal,” he said.

Also in msnbc.com business Answer Desk: The risks of investing extensively in gold Your Career: The repercussions of expressing your faith Interactive: 10 cars we’re looking forward to in 2010 ‘Reaching out’ and the other worst buzzwords of the year   Video: Existing home sales make an unexpected jump

MORE FROM GUT CHECK

Gut Check Section Front

N.Y. town copes with foreclosure fallout Poughkeepsie seeks foreclosure solutions 10 Tips: Facing foreclosure? Here's help More than homeowners suffer from foreclosures Gut Check Section Front   Add Gut Check headlines to your news reader: