A farmer harvests his corn crop in September 2007 near Morris, Ill.
A farmer harvests his corn crop in September 2007 near Morris, Ill. - 
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KAI RYSSDAL: Not everyone is suffering because of the explosion in commodity prices. The Department of Agriculture says U.S. farm profits this year are going to be well above average. But commentator and journalist Bill McConnell says farmers know better than to get too excited about any short-term windfall.

BILL MCCONNELL: These should be heady times in America's agricultural business. Global demand for corn, wheat, and other crops is at historic highs.

A combination of factors is stoking this boom. Food consumption in rapidly developing nations like China and India is on the rise. The use of corn and soybean-derived fuels has increased U.S. demand for commodities. On top of that, the weak dollar makes American ag exports more affordable overseas.

Despite all that, a sense of foreboding hangs over the business. Farmers, their distributors and their bankers have seen booms before and they know the good times often end with a crash. The go-go farm economy could be the next financial bubble.

Indeed, agriculture experts say today's boom is built on a fragile confluence of factors that could upend the sector suddenly.

Demand for corn could plummet if it loses political favor as a feedstock for ethanol. The ethanol craze is now being blamed for food shortages in poor countries. Oil prices could significantly outpace crop prices. And this could increase the costs of inputs like fuel and fertilizer and cut farmers' revenues.

A collapse of farm profits would hit the banks in American farm states. Many farmers have been borrowing to expand their land holdings and are paying record prices. The flush farm economy also has attracted Wall Street firms looking for double-digit returns. Ag experts see investment funds' participation from the likes of Morgan Stanley and Black Rock as a double-edged sword. They provide liquidity but they can exit the market as quickly as they entered.

The increases in land values and the borrowing that feeds it worries officials in the Midwest. Adding to their anxiety is the erosion of manufacturing in the region. When the farm economy crashed two decades ago, many farmers weathered the storm by taking second jobs in nearby factories. Today, those jobs aren't there.

One farmer told me, "We know our land is not an entitlement. We don't take for granted it's something we can't lose."

RYSSDAL: Bill McConnell is the Washington Bureau Chief for The Deal...that's a magazine that covers mergers and investment banking.