As food prices rise, farmers, others profit

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 like Cargill and ADM are rife with profits. Fertilizer and tractor companies are cashing in. Hedge funds who 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 around 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.

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

Willis isn't saying how much he made last year. While 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. says 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.

The boom times in farm country have arrived. Corn, soybean, and wheat prices have been pushed to 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 record last year. The run-up is because, in the frenzied trading, the same commodities are changing hands far more than they used to.

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

Profits at seed and pesticide maker Monsanto Inc. reached nearly $1 billion last year — a 14-fold increase since 2003. They've 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 profits to $2.3 billion, up nearly six-fold since 2001.

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

Fertilizer makers are winning big, too.

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

Companies like Deere, the world's biggest maker of farm machinery, are also in the midst of flush times.

Between 2005 and 2007, Deere's net profit rose more than 25 percent to $1.8 billion. Meanwhile, operating profits of the Moline, Ill.-based company's agriculture division rose nearly 50 percent, to $1.4 billion.

"Everybody is getting their little piece. Everybody wants a piece of the pie," said Lee Richardson, a 37-year-old farmer from Willards, Md., who's seen the robust profits of his grain harvest consumed by the increasing costs of raising more than 1 million chickens annually on his family's 2,200-acre farm

Food prices in the U.S. rose about 4 percent last year, which may not sound like much, but it's the fastest rate since 1990, according to the Agriculture Department. Prices on some foods rose much faster. White bread prices rose 13 percent last year, bacon 7 percent. Peanut butter jumped 9 percent.

And it's picking up speed. Food inflation is running at an annualized rate of 6.1 percent as of April, the Bureau of Labor Statistics reported on May 14.

In addition, a weakened dollar makes American produce cheap and desirable abroad while weather-wrecked harvests in some foreign countries have generated regional scarcities, increasing global demand for products. At the same time, emerging economies in India and China are creating nations of residents demanding higher-quality ingredients and food.

The rising prices are forcing changes at food and ingredient buyers such as Kraft Foods Inc.

Kraft Foods Inc. has seen its commodities costs grow 9 percent, or $1.3 billion. This year, the company expects to see an even bigger input cost increase.

It's raising prices across the board, but the Northfield, Ill.-based food maker is also getting innovative by changing some product packaging to save money. It switched its classic Miracle Whip jar from glass to plastic. The lighter packaging saves Kraft 87,000 gallons of fuel each year, said spokesman Mike Miller.

Even if this year's global harvest is robust, shoppers shouldn't expect big price breaks anytime soon. The USDA said it expects food prices to rise another 4 percent to 5 percent this year.

"We're in a new era," said Mike Helmar, director of industry economics at Moody's Economy.com, "where prices are going to be a bit higher than they were in the past."

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Freed reported from Willmar and Minneapolis; Heher reported from Chicago.