Wall Street Bust, Midwest Boom?

[Why (Some) Twin Cities Real Estate is Headed Higher - Part Two]

Commodities Boom, Weak Dollar Benefit Twin Cities Companies

The Twin Cities may not be Dubai or even Houston, but thankfully it's not Wall Street, either. As companies like Citigroup and Merrill Lynch write off tens of billions (never mind Bear Stearns) and lay off thousands, some of the biggest corporate winners are located . . . here. In turn, that bodes well for the local housing market, which ultimately is driven by two things: job growth and interest rates.

Consider:

--In contrast to Citigroup, Merrill Lynch, Lehman Brothers, and Bear Stearns, whose stocks are down anywhere from the 50% to 95% (ouch!) the last year, a relatively obscure, Plymouth-based company, Mosaic, has appreciated almost 300%, or $40 billion (yes, billion!). Thought that 3M, Target, or United Healthcare was Minnesota's most valuable, publicly-traded company? Think again.

--In fact, the state's most valuable company likely isn't a publicly-traded company at all: it's a $100 billion, media-shy behemoth named "Cargill." Minnetonka-based Cargill is to agriculture what the old Standard Oil was to petroleum: a multi-national, vertically integrated, seeds-to-grocery shelves conglomerate. Because it's privately-held, it does not have to report financial results, but it's clear that what's good for Mosaic is great for Cargill (assuming there's a difference: Cargill insiders own about two-thirds of Mosaic's stock).

--How do you know when farmers are flush? They're quiet (maybe they're afraid of jinxing it). To a non-farmer like me, it seems like farmers are always complaining about something: it's either too hot or too cold, too dry or too wet. If somehow the miraculous occurs -- growing conditions are perfect and there's a bumper crop -- farmers inevitably complain that excess supply is depressing prices.

Upper Midwest 'Black Gold'

Not this year. Demand for corn (food and ethanol), wheat, and soy beans is soaring -- and with it the land needed to grow it. Minnesota is to farm acreage what Wall Street is to finance and Saudi Arabia is to oil; if farmland has conservatively risen 50% in the last three years (Barron's; 12/31/2007), Minnesota's roughly 25 million acres of farmland has appreciated almost $20 billion since then. To put that in perspective, that gain is about twice the cumulative drop in Twin Cities residential real estate since the market peak.

The clearest beneficiaries of this boom are companies that sell to farmers. That includes John Deere (capital equipment); Monsanto (seeds); and Mosaic (fertilizer). However, farmers' newfound bounty is also bullish for commodities traders, local and regional banks, and other ancillary services. To take just one example, seats on the suddenly-hot Minneapolis Grain Exchange quadrupled, from $72,500 to $285,000 in 2007 alone ("Will Grain Exchange Boom Last?"; Minneapolis/St. Paul Business Journal, 1/4/2008).

If "what's good for General Motors is good for America," the local equivalent is "what's good for agriculture is good for Minnesota (and the Twin Cities)."

--Further burnishing the Twin Cities' luster: an outstate boom in ethanol refining (18 plants producing 680 million gallons of ethanol a year); Minnesota-headquartered food processors such as General Mills, Hormel, and Land o' Lakes; the weak dollar's positive effect on export-driven companies like 3M; and the Twin Cities' historic role as the business and banking center of the Upper Midwest.

The Middle East may be oil-rich, but the Middle West is (farm)land-and-commodities rich. In the middle of an epic, world-wide commodities and ag boom, it would seem that there are worse places to be.