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In Farm Country's Boom, Hints of a Bubble

That prosperity also shows itself on Lyle Schjodt's farm a few miles outside Blair, where he farms 1,000 acres of corn and soybeans, 150 head of cattle, and 1,200 hogs. He still has the first tractor he ever bought, back in 1968, in a shed. "I've been farming for 39 years, and I haven't seen a better year than this one," he said.

Schjodt is upgrading his equipment; he just ordered a $120,000 Case IH planter, a massive red device that deposits seed corn every seven inches in 30-inch-wide rows. He bought a new $50,000 Ford F-350 back in the spring, too.

The government stimulus bill passed in February included provisions that will let him depreciate the value of those big-ticket purchases immediately. "They're some pretty attractive write-offs," Schjodt said. "It will get my tax bill down a lot in what's looking to be a real good year for income. I just wanted to take advantage of that."

His farm-equipment dealer, Victors Inc., is having a banner year, helped by those tax provisions and actions by the Fed, which has cut the bank lending rate it controls from 5.25 percent to 2 percent. The rate that Victors customers have to pay for a loan to buy a tractor or combine has dropped to about 5.75 percent, from 6.25 percent in the spring.

Not long ago, you could show up and buy a new tractor off the lot; now there is a 10-month backlog.

The main reason is high farm incomes, but "lower rates make the purchases more affordable for people," said Brad Victor, the owner.

Victor has expanded his staff from 20 to 25 people in the past 18 months and is building a 16,000-square-foot warehouse, decisions that would be hard to reverse if demand retreats.

The soaring prices for farm land echo the boom in housing prices in coastal regions from 2002 to 2006. Schjodt recently bought 20 acres that adjoined his property for $4,600 an acre; four years ago he made a similar purchase for $2,500 per acre.

Schjodt paid cash, but many of his peers borrow money to buy land -- up to 70 percent of the purchase price, frequently with variable-rate debt. In past run-ups of land prices, that has created problems. When interest rates rose sharply in the early 1980s and crop prices declined, thousands of farmers lost their land.

"I've been through two or three of these things in my lifetime," said Jim Realph, who worked in the farm credit system in the 1980s and is now mayor of Blair. "The biggest risk is the interest rates. If they swing up higher, it makes it much harder for a farmer to keep paying the debt."

A Far-Reaching Boom

The boom spreads beyond land and farm equipment. "You can tell when farmers are doing well," Schjodt said, "because they go out and buy a new truck."

Nationally, truck sales are battered by skyrocketing fuel costs. But auto sales are up 8 percent in the Omaha area so far this year, according to sales tax receipts.

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