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Is the recession finally coming to ‘Tractor Country’?

Dante Chinni

Posted: 10.12.2009 / 9:24 AM PDT

As the troubles of the recession have worked their way through the nation, one part of the United States has largely been spared, the agricultural communities we call “Tractor Country.” Those counties, clustered heavily breadbasket states like Nebraska and Kansas, have an unemployment rate that is roughly half the national average (about 5 percent) and have an almost nonexistent foreclosure rate.

But there are signs now that times may be changing in “Tractor Country,” and it’s not the standard measures – like unemployment – that reveal the story in these places. It is the quieter numbers inside the economy like commodity prices.

In a visit to Sioux Center, Iowa, last week, we heard a lot of people say they understand that they have, thus far, missed most of the economic trouble. But two years of low prices on things like hogs and cattle are taking a toll, they said, and the next six months may be critical.

At the auction house

On Friday, at the Tri-State Livestock Auction House in Sioux Center, the usual group of buyers gathered to bid on old dairy cows, and they liked what they saw – cheap meat. The buyers at Tri-State said that on average they were getting between $150 and $200 less per head of cattle than they were just two years ago.

“We have not seen huge losses in the number of cattlemen, at least not yet. But the bankers are a little more nervous than usual,” said Mike Koedam, who mans the microphone at the auction house. “The cattlemen have had a tough time for the last two years.”

And they’ve had a particularly hard time in the last year. Prices hogs, cattle, and milk are down sharply from last year. The same is true for some crops.  September prices for a bushel of corn were at $3.32, down $1.69 per bushel from last September. It’s the smaller farms, working closer to the margins, which have had the toughest time.

What’s causing the problems? You can draw a line directly from unemployment and economic uncertainty straight through to the supermarket register, where consumers are buying less and cutting back on more expensive items – like meat.

Last year, a pound of hamburger was going for $2.37 in August, according to the Bureau of Labor Statistics. This year it is down to $2.13. That is a big drop and it extends more broadly to other food commodities as well. The price of a pound of pork chops is down from $3.38 per pound to $3.19. A gallon of milk is down from $3.88 a gallon to $2.97.

Holding on

Still, “Tractor Country” remains relatively stable – at least for the time being. As we have noted in previous posts, the attitude toward debt and lending in communities like Sioux Center is very cautious – differences can be seen in where TARP money went.

And even at the US economy struggles, construction continues in Sioux Center, which has diversified its economy somewhat to include small manufacturing.

But many here see at least some parallels with the recession of the early 1980s, which hit the coasts and big cities first. As the recovery came to those places, the troubles were just beginning in agricultural America, eventually leading to the collapse of many small farms.

Eric Walhof, president of the First National Bank of Iowa’s Sioux Center branch, calls the similarities “eerie,” but he feels the lessons learned then should prevent a second collapse. Even in good times, loans are not granted as easily as they were back then, when they were given as long as applicants had land as collateral. Now, banks look closely at profit and loss statements.

But most everyone agrees that those with smaller farms are struggling now after months of hard times. If they start to go under, the ramifications in “Tractor Country” will be large – foreclosure rates will climb, signifying losses in employment and homes.

Moreover, the economic recovery in the United States is currently shaky at best, meaning the next six months might not bring the relief many in “Tractor Country” seek.