Oct. 19 (Bloomberg) -- Pickup trucks lined a stretch of gravel road where 150 farmers mingled between 7-foot tall cornstalks and shimmering soybeans to see which of their wealthy brethren would bid on a swath of Iowa’s richest cropland. This was a farm -- table-flat and 314 acres -- so coveted that it drew three times the usual land-sale crowd.
“They ain’t making any more of this, boys,” auctioneer Rich Vander Werff barked into a microphone, his voice slicing through the rising July heat. “This is about as good as it gets.”
Thirty minutes later the bidding stopped at $14,300 an acre, more than four times the average for U.S. cropland. That meant about $4.5 million for the Schoenemans, a pioneering Iowa family that owned the property for generations.
Farmland auctions in Iowa now resemble a dressed-down spectator sport with Sotheby’s prices, a reflection of the yawning divide that has opened in some of the most bountiful stretches of rural America. Farm earnings in the state and throughout the U.S. increased at eight times the rate of nonfarm wages from 2008 to 2011, fueling resentment and straining the social fabric of places with deep egalitarian roots.
“Iowa had had historically low levels of inequality, but now it is skyrocketing,” said David Peters, a sociologist at Iowa State University in Ames who specializes in income disparity. “Today you have far fewer farmers and a small number earning larger and larger incomes. It doesn’t spread through the economy like it used to.”
Booming worldwide demand for grain has showered wealth on farmers by tripling Iowa land values in the past decade and setting them up for record profits this year, even in the face of the nation’s worst drought in more than half a century, the U.S. Department of Agriculture projects.
Land that had long produced boxcars full of corn and soybeans is now yielding a new crop: locally grown millionaires. In doing so, it has brought to the nation’s rural areas the kind of income divide that had long been the province of urban America.
Less-populated areas dominate the ranks of U.S. counties where income inequality widened the most in recent years, according to U.S. Census Bureau data. Barton County, Kansas, led the nation in the most common measurement of that gap, the so-called Gini coefficient, between 2007 and 2010. The trend was driven by commodity-price spikes and the proliferation of oil drilling in the center of the state. Next is Randolph County, Alabama, home to a faded outpost of the textile industry.
These rural counties reflect divergent recoveries in the first two years since the last recession ended in 2009. During that time, the top 1 percent of Americans captured 93 percent of real income growth, compared with 65 percent during the recovery from the 2001 recession, according to an analysis by Emmanuel Saez, an economist at the University of California at Berkeley.
Iowa’s most recent unemployment rate was 5.2 percent, well short of the national average of 7.8 percent. While that has complicated Republican Mitt Romney’s efforts to take the state’s electoral votes away from President Barack Obama, the job growth has largely bypassed its least-populous areas.
The split has produced climbing levels of need in the nation’s breadbasket. Food-stamp demand in Iowa rose 6 percent in July from a year earlier, according to the latest government data. That’s twice the 2.9 percent nationwide increase.
Iowa’s income gap has widened, as it has in other states, after the loss of good-paying industrial jobs. A Maytag appliance plant owned by Whirlpool Corp. closed in Newton in 2007. Electrolux AB shut two factories last year in Webster City and Jefferson, an hour apart. The lost factory jobs have been replaced by low-skilled service positions, often part-time and without benefits.
Some, like Kari Langel’s directing a federally funded program that taught disadvantaged youth, are disappearing altogether. On the mid-July morning of the farm auction, the 37-year-old mother of five was seeking rental assistance at a local church in Plymouth County. She’s seen other properties sell for even more than what the Schoenemans’ drew.
“I’m looking for help, and Johnny Farmer down the road is making $18,000 an acre when I was making more than they did three years ago,” said Langel, who says she lost her job in June and found herself applying for food stamps, unemployment compensation and Medicaid for the first time in her life. “It’s frustrating on so many levels.”
Like the ‘Hillbillies’
Those buying up the land are more likely to be locals than just a few years ago. The percent of Iowa farmland purchased by investors peaked in 2005 at 39 percent before falling to 22 percent in 2011, according to Michael Duffy, an agricultural economist at Iowa State University. Farmer purchases rose in that period to 77 percent from 59 percent. The Schoeneman property was no different: A grower eight miles down the road bought it.
“It’s almost like ‘The Beverly Hillbillies,’” said David Kohl, an economist at Virginia Polytechnic Institute and State University in Blacksburg, describing the unprecedented good fortune of grain farmers. “They just shot in the ground and up came bubbling crude oil, and they became millionaires.”
Nowhere is the surging value of property more evident than in O’Brien County, Iowa, a perfect square of 24 miles in each direction, tucked near the corner of the South Dakota and Minnesota borders. An acre of O’Brien land in 2011 was valued at $9,513, a 33 percent increase from 2010 and the state’s highest average, according to Iowa State.
Income disparity also has escalated. The top 10 percent of wage-earning households collected 54 percent of the county’s income in 2010, compared with 40 percent a decade earlier. Of more than 3,000 U.S. counties, O’Brien had the 23rd highest jump in income inequality from 2000 to 2010, based on census data.
The concentration is in part the culmination of longer-term changes in the farm economy. Advances in technology --mechanical planters outfitted with GPS can be 54 corn-rows wide -- have accelerated the consolidation in agriculture. “Same acres, bigger farms, fewer farmers,” Duffy said.
In the 1980s, thousands of farms across the country were forced into foreclosure after a speculative land-buying bubble burst. Willie Nelson staged his Farm Aid concerts as farmers watched their family history sold off at auction. Prices in Iowa sank 63 percent from 1981 to 1986. The upheaval rippled through the state’s economy, weeding out those overwhelmed by debt. The survivors are bigger and wealthier.
Herb Struyk sat on a swivel chair in his air-conditioned barn office, a 12-by-12 room that resembles a man cave. Surrounded by a collection of beer posters, a deer head and a Hooters calendar, he hosts a daily coffee gab for area farmers. They gather at 9 a.m., pull their mugs from hooks on the wall and pour from Herb’s pot.
“Crazy prices, crazy times,” said Struyk (pronounced “strike”). Corn and soybean futures on the Chicago Board of Trade hit records last summer, with the government projecting the U.S. harvest to be the lowest in at least five years.
He intended to retire from farming in his 60s; now he’s 76 and has no intention of stopping. “It’s really hard to quit when prices are what they are, especially for people like me.”
On this July afternoon he was dressed in blue jeans and a T-shirt, with tennis shoes and brown argyle socks. Like a survivor pinching himself to make sure his good fortune is real, Struyk wonders aloud where corn and soybean prices are headed.
“This isn’t going to last forever,” he said, “and I’m not so sure these kinds of prices are healthy.”
Struyk began farming in 1956, at age 20, just outside of Sheldon. Today he grows soybeans and corn on about 400 acres (162 hectares) he owns and about 300 he rents. Based on recent auction prices, his land is worth more than $5 million.
Historically high land values have given farming in Iowa the appearance of a private basement poker game, where the pot keeps getting bigger while the players -- the landowners --don’t change. Struyk has a seat at the table, along with his increasingly elderly peers. Fifty-five percent of the state’s farmland was owned by people 65 and older in 2007, almost double the percentage of 25 years earlier, according to survey data from Iowa State.
“For the young farmer getting started, man, he has to have some help,” said Struyk, who knows some who can’t overcome the land-price hurdle. Without financial assistance, “it’s almost impossible,” he said.
High land prices prompted the Schoenemans to put their 314 acres up for auction in July. It divided the heirs.
“I didn’t want to sell,” said Rheta Schoeneman, 68, who moved back to Iowa from San Diego several years ago to continue the family’s farming tradition. In the face of soaring prices, she couldn’t persuade her siblings to keep the land, which she said Schoenemans had owned since 1829.
Even in families where the children want to farm, not everyone can make a living at it. Struyk’s son, Lane, got out 20 years ago because there wasn’t enough income to keep working with his father after the 1980s farm crisis. He traded dusty rows of corn and soybeans for aisles of shiny red, silver and black trucks at a Ford and Chrysler dealership in Sheldon.
The younger Struyk, 54, sells pickups to farmers, who increasingly shell out for top-of-the-line amenities including leather interior, temperature-controlled seats and GPS navigation.
Leaving the farm was “disappointing,” Lane said, pausing. “But no hard feelings. Life is difficult.”
The reality of today’s uneven recovery in rural America weighs on Kari Langel, the laid-off school administrator. She always believed that a good education would shield her from joblessness. Her bachelor’s and master’s degrees in education enabled her to move from classroom teaching to administrative positions over 15 years.
“That was my defense,” Langel said over a cup of coffee in the kitchen of her rental home in Le Mars, a few weeks after losing her job. “Everybody always said, ‘Get more education because there are jobs out there, there are jobs out there.’ But those jobs aren’t in Iowa.”
While Iowa’s unemployment rate is lower than the national average, it understates the disparities in the state’s rural economy as young people shrink the labor pool when they move in search of better opportunities, Peters said. The census showed that two-thirds of Iowa’s 99 counties, including O’Brien, lost population in the last decade, with many people moving to metropolitan areas, or out of state.
Some companies that have added nonfarm jobs have done so in urban centers experiencing population increases. One, Accumold, a privately held maker of medical-device parts, plans to hire near Des Moines.
By contrast, nonfarm jobs in O’Brien fell to 6,200 in August from 6,400 at the start of the recovery three years ago, state data shows. The county wasn’t an outlier: Sixty-two rural counties lost nonfarm jobs during that period, four times the number of those that gained.
“In some rural areas, you can stay and be underemployed,” Peters said, “but in many there isn’t any opportunity at all.”
Langel was determined to remain in her home state. Then she found a job in August as a school administrator at an Indian reservation 60 miles away, in Macy, Nebraska. While she considers herself “one of the lucky ones,” she’s not so sure she’ll stay in Iowa.
The experience of filing for government assistance -- even online, without having to stand in line -- was humiliating, she said. It underscored her belief that the new economy unfairly selects winners and condemns losers.
‘Scraping and Scrambling’
“There are people scraping and scrambling while land is selling for $14,000 an acre,” she said. “Why?”
She grew up on a farm and understands the realities of agricultural consolidation. Still, she wonders about the price of income inequality.
“This skyrocketing of land prices is doing nothing for the economy,” she said. “It’s not helping anybody, except the farmers who own the land.”
Subtle signs of economic stress are on display in her hometown of Le Mars. It’s the self-proclaimed “Ice Cream Capital of the World,” where downtown streetlights fly banners with images of single-dip cones. This is the home of Blue Bunny ice cream.
About a mile from Langel’s house is Rejoice! Community Church. The number of people who come for a free monthly community meal, where they receive grocery bags of food to take home, is up 30 percent from a year ago, said Donna Britcher, who helps run the pantry.
“The American Dream is alive in Le Mars,” Britcher said later as she sat in the kitchen of her trailer. “But it’s a dream.”
Matt Dykstra, a fourth-generation Iowa farmer, has his own aspirations. At 31, he’d like to pass the family business to his three children. That wish seems like a $14,000-an-acre fantasy as he sits in a rusty metal folding chair in his barn, flies circling overhead.
The Dykstras rent 900 acres to grow corn and soybeans. Matt’s father, Mark, bought 80 acres in 1985 at the bottom of the farm crisis for $1,800 an acre. That was less than 20 percent of the average value in O’Brien last year.
“Right now the only option we have is to rent, unless we win the lottery,” Mark said.
While the historic run-up in grain prices means higher profits for anyone who grows the crops, landowners enjoy an advantage because they reap higher net worth as acres become more valuable. Buying land is even more out of reach for farmers like Dykstra, who must pay more to rent the land he farms.
Average rents are up 43 percent statewide since 2008, according to a survey from Iowa State. The Dykstras’ increase has been even greater. They pay about $425 an acre today, compared with as little as $125 five years ago -- not to mention diesel fuel, fertilizer and other farm expenses that the USDA says will increase 6 percent this year.
The family is part of a farming class that now dominates Iowa. In 2007, the most recent data available, 60 percent of Iowa farmland was rented or leased in crop-share arrangements, compared with 43 percent in 1982.
The record land prices have prevented the Dykstras from acquiring more land, so they expanded their hog business instead. Yet livestock is a riskier proposition. This year’s drought has driven up feed costs for producers, and hog farmers aren’t protected by crop insurance like grain farmers.
On the day of the farm auction, Matt Dykstra said there wasn’t any sense in driving to the sale a mile away and mingling with “millionaires and billionaires” to bid on something he couldn’t afford.
“I’m not going to waste my time,” he said, heading out to check his pigs. “I’ll do something to make money.”
For his neighbors who aren’t in farming, prospects for the future are even more uncertain. Workers at the AdvancePierre Foods meat processing plant in Sioux County, O’Brien’s next-door neighbor to the west, know what it’s like to be stuck on the outside.
For 31 years, Cathi DeVos worked at the plant in Orange City. She started packaging hamburger meat on the production line. Eventually she landed a human-resources position, handling the paperwork for co-workers being cut and helping them determine their eligibility for food stamps. Ten months ago, it was her turn.
“At this point in my life, I was not ready to be without a job,” said DeVos, 61, who was let go as Cincinnati, Ohio-based AdvancePierre downsized and her department shifted to a new payroll and time-management system.
DeVos, who has applied for dozens of jobs, says she knows there are “many, many, many” people “much worse off” than her. Her husband, a truck driver, still has his job.
AdvancePierre plans to shutter the plant by the end of this year, eliminating more than 300 jobs. It follows the loss of 111 paychecks at Nemschoff Inc., whose Sioux Center facility made chairs for the health-care industry before it closed Sept. 15.
Such losses stagnate wages and widen the income gap, said Peters, the Iowa State sociologist. Even if the AdvancePierre workers find new jobs, their wages won’t be “nearly the rate they were making in their previous jobs,” he said.
Small Iowa communities have been the biggest losers in the concentration of land ownership. The victims range from hair salons to machine shops. Even school bus routes are affected. O’Brien’s declining population eliminated two of them at Sheldon Community Schools.
“Our buses used to be full,” said Robin Spears, the superintendent. “We now have so much room in our buses that we have enough space to pick up kids in town who used to have to walk to school.”
In Sheldon, where the pungent odor of the town’s soybean-processing plant is the smell of money, economic stress is kitty-corner from Citizens State Bank.
It’s here, at 8th Street and 3rd Avenue, that business surged 42 percent last year for the local recycling center. Toni Ginger, owner of the Corner Can Redemption, said she has the sputtering economy to thank for the Mountain Dew and Coca-Cola cans, each worth 5 cents, overflowing in cardboard boxes.
Some who used to bring in the plastic bottles and aluminum cans as donations to the local Boy Scout troop aren’t hauling recyclables for charity anymore. They need the extra cash for themselves, they’ve confided to Ginger.
Regulars scavenge ditches on the side of the road -- the same county byways that line the fields yielding gold for the farmers who own them.
To contact the editor responsible for this story: Gary Putka at email@example.com