Down on the Farm

We’re still in a weak recovery. But consumers are buying pickup trucks on credit. What’s going on?

It sure helps Detroit. Strong sales of pickup trucks have helped the sector rebound. Car makers have much bigger profit margins on trucks than they do on compact and mid-sized cars. But the strong pickup sales have puzzled many. Usually it’s the construction trades that buy pickups: carpenters, plumbers, electricians. The pickup bed makes a great place to store tools and carry supplies. But with the housing overhang depressing that market, how can pickup sales be taking off?

The answer is in the farm-belt. The Midwest is seeing a record harvest. Advances in genetically modified crops have steadily increased yields, and a year of seasonable rain and moderate temperatures have led to bumper crops and bursting grain elevators. Pickups can carry a lot of fertilizer.

Many Midwestern states are reaping an energy harvest as well, as oil prices steadily increase, and wind energy is a new source of revenue as farmers lease out their land for the installation of wind turbines. The net result is that the Agriculture Department estimates farm income rose by more than 30% in 2010. As a result, farmland values have gone up about 10%.

It’s all part of having a diversified economy. One sector booms and pulls the others along. Expect lots of tractors, combines, and pickups to be sold in Omaha next year.

Douglas R. Tengdin, CFA
Chief Investment Officer
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