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Wall Street Journal Feature: Farmers Get Creative in Reaping Profits

http://on.wsj.com/2j8SpRl

Farmers Get Creative in Reaping Profits

As commodity prices drop, some growers are converting grain into booze and flour to wring money from crops

By

JESSE NEWMAN

Jan. 9, 2017 5:30 a.m. ET

28 COMMENTS

Instead of selling all of this fall’s record corn harvest to ethanol plants or foreign livestock farmers, Jim and Jamie Walter are turning a portion into a more lucrative product: whiskey.

The father-and-son Illinois farmers are among a small group finding unique ways to wring money from their crops, while a commodity glut pushes grain prices to multiyear lows. They hope satisfying a consumer shift toward locally made, high-quality products will be more reliably profitable than turbulent global grain markets.

“It was obvious to us that it was not a long-term business model,” Jamie Walter said of the farm’s reliance on crop prices that have swung wildly this decade. Now, the fifth-generation farming family that owns Walter Farms is branching out with their Whiskey Acres Distilling Co., in its third year crafting corn and wheat into liquor for sale 60 miles away in Chicago.

“By creating a value-added product it gave us the opportunity to succeed,” he said, noting that building the $1 million distillery with partner Nick Nagele was an alternative to amassing debt to expand their 2,000-acre farm. “We wanted to establish our own pricing power.”

Corn and wheat prices on the Chicago Board of Trade have plunged nearly 60% since recent peaks in 2012. Soybeans have decreased 44% during the same period. As a result, farm incomes have fallen by half from record highs in 2013. Many farmers will lose money this year, economists say.

Since World War II, grain farmers have sought to boost profits mostly by increasing yields, driving down costs and expanding their operations. Bigger, more sophisticated equipment and high-tech seeds have encouraged a trend toward larger, more capital-intensive farms. Now, growing demand for locally produced food and drinks is coinciding with concerns about volatile crop prices, providing an opportunity for farmers to try shrinking the gap between their crops and consumers.

“Without question, most producers are looking for ways to improve margins,” said Mark Jensen, chief risk officer at Farm Credit Services of America.

In 2012, farmers raising crops on good land in central Illinois earned about $341 per acre of corn, according to agricultural economists at the University of Illinois. This year, those farmers are expected to lose $30 per acre.

Dairies and orchards long ago opened their doors to day-trippers eager to buy artisanal cheeses and apple cider direct from farmers. Livestock producers have introduced heritage breeds and grass-fed animals that put their names on the menus of high-end restaurants. These days, some farmers are converting their grain into booze and flour for baked goods themselves. Growers have opened mills on their farms, or switched to planting grains used to make tortillas and chips.

“I’m expecting to see this as a trend that accelerates the longer that prices and incomes are depressed,” said Randall Westgren, professor of agricultural and applied economics at the University of Missouri. Mr. Westgren predicted farmers would pool their investments to launch expensive consumer-facing businesses together.

Farmers such as the Walters are still rare. On-farm grain processing requires a significant investment, and the current system of selling crops to grain elevators, which supply food makers, livestock producers and exporters, remains an efficient way to market grain for many growers.

Increasingly, however, some are switching to seeds that haven’t been genetically modified, which can be cheaper and appeal to customers willing to pay a premium for products made with non-GMO crops. Others are branching into livestock, putting up hog or chicken barns in which to feed animals for a larger producer in return for a steady wage.

Mike Doherty, senior economist at the Illinois Farm Bureau, said many of those eager to wean themselves off commodity markets are young farmers joining their parents’ business during a downturn.

“Prices are so low and the cost of production is not dropping fast enough,” he said. “They’re looking at doing something that’s smaller-scale but higher-profit by getting closer to the consumer.”

Tom Hunton added a stone mill to his Oregon farm in 2011 after the recession undermined prices for specialty crops he grows, including grass seed for lawns and golf courses. His Camas Country Mill now turns wheat from his 3,000-acre farm into flour for bakeries and restaurants in Portland and Seattle.

Chipotle Mexican Grill Inc. is a customer, as are schools and restaurants as distant as New York. Mr. Hunton’s proceeds from the soft-white wheat he sends through his mill work out to $8 a bushel, compared with $4.60 a bushel for grain he recently shipped to Portland for export to countries such as Japan and Korea.

“Is it as simple as loading a railcar and getting a check? No,” he said. “But there are real rewards by the time we turn it into flour and market it.” Revenue from the mill neared $1 million last year, and annually adds about 40% to Mr. Hunton’s top line, he said.

Whiskey Acres, meanwhile, has earned gold, silver and bronze medals at international spirits competitions. Bottles can be found in 300 Illinois stores, from Whole Foods Market Inc. to discount grocer Hy-Vee.

Jamie Walter hopes Whiskey Acres will turn its first profit next year, when more of its barrel-aged bourbon is ready to sell. Meanwhile, he’s experimenting with corn varietals and distilling processes. A key finding: like pig feed, whiskey is better with fresh grain.

“Hogs and humans have a closer palate than we might think,” he noted.

Write to Jesse Newman at jesse.newman@wsj.com