Canola oil brings housing crunch to northwest Minnesota

HALLOCK, Minn. -- Big rigs. Big money. Jobs aplenty. Scarce housing. A woeful region revitalized by oil.

In many ways, the northwestern corner of Minnesota has the feel of western North Dakota. However, the oil driving this revival is not crude. It's canola.

One-fourth of the way through construction and 14 months before production starts, the $168 million canola plant rising on the prairie already is providing a much-needed jolt to the economy.

"We've been trying to do economic development for lots and lots of years, and we finally got something," said Joe Bouvette, chairman of the Kittson County (Minn.) Board of

Commissioners.

"This is really something for our little area."

The latest census figures show that the county lost 14 percent of its population in the past 10 years, falling to 4,552. County seat Hallock lost 200 people, falling below 1,000 "for the first time ever," in Bouvette's words.

Northstar Agri Industries has stopped the bleeding. Starting in mid-January, about 100 workers have been working on the site. When construction hits full stride this summer, workers may number 250.

When production of the cooking oil starts in the summer of 2012, full-time employees will number 47, with an estimated annual payroll of $3.3 million, an average of $70,000.

A home-grown idea

Although California investment company PICO Holdings now is the majority owner of Northstar, the idea was home-grown.

Todd Johnson of Johnson Oil, canola grower Hugh Hunt and Jon Blomquist, owner of the local Ford dealership, were on the ground floor. They're board members of the minority owner entity that holds 12

percent.

A Wisconsin investor interested in building a biodiesel plant brought the idea to Johnson in 2004. "I figured we're selling the stuff, so we might as well get into manufacturing it," Johnson said.

The three Hallock residents and three partners from Fargo, including Northstar President Neil Juhnke, attracted 120 investors, most of them from Fargo and the northern tier ranging from Langdon to Roseau, Minn.

Eventually, the plan changed from using the canola oil for fuel to using it for food. That's when the idea took flight.

"We realized that biodiesel profit margins were completely dependent on incentives from the government," Juhnke said. "We wanted to go forward with a process that is independent of politics.

"Plus, fundamentals in the food business were strong. The world is a hungry place. On top of that, the canola industry was benefiting from the surging demand because of its health benefits. Food uses of canola oil increased."

Initially, 50 percent of the canola will come from Canada and at least 40 percent from North Dakota. However, Juhnke anticipates that Minnesota growers eventually will provide more than half of the canola. Hunt, who is one of Minnesota's leading growers of canola with one-third of his acreage dedicated to the crop, is a model for the potential.

"Canola acreage in northwestern Minnesota has suffered in the last 10 years, mostly due to logistics in getting the crop to market," Juhnke said. "The closest processor is in Canada and since 9/11, Homeland Security restrictions have made it tougher to deliver. We see ourselves creating a local market for Minnesota

farmers."

Housing shortage

for workers

Just like in western North Dakota's oil boom, housing is the biggest problem faced here. With the help of the Northwest Regional Development Commission, building contractors are struggling to keep up with the demand for finding beds for their workers.

"And it's going to get more challenging as we go along," Johnson said.

A weekly flyer of new listings goes to contractors. Several towns in the area activated dormant electrical hookups for campsites or moved in manufactured homes. In Kennedy, Minn., an 8-plex that had sat empty for years was quickly remodeled and occupied.

"A lot of people rented houses that they wouldn't ordinary rent," said Leon Heath of the NRDC. "And the drop in population around here actually helped. There was a lot of vacant housing, in apartments and farmhouses."

Workers arrive from all directions at the plant that is going up on the flat landscape three miles south of town along U.S. Highway 75. It's already imposing in breadth and height, as the site covers 240 acres and three towers, a silo and four cranes are creating a skyline.

Its three main buildings eventually will be four to five stories high. For size, it will be similar to an ethanol plant and slightly smaller than the region's sugar beet factories, Juhnke said.

"It's like they're putting a whole new city out there," Hallock Mayor Paul Clay said.

The 240 acres could provide room for Northstar expansion, tie-in businesses or companies that want to use their rail loop.

"There are lots of moving pieces out here," said Nathan McAlpine, field engineer for McGough, the construction management firm.

"This will be landmark that can be seen from many miles away."

No room at the inn

Michael Totleben, owner of the modest Gateway Motel, can't wipe the smile off his face. His 10 units have been booked solid since Jan. 8.

He typically relies on Canadian tourists during the summer and hunters and sugar beet haulers during the fall. The winter months' normal occupancy? One or two per night.

"It's been wonderful," Totlebem said, about the steady stream of occupants for his rooms, which cost $200 a week for singles and $300 a week for doubles. "I'm not going to be a millionaire, but I'm now able to afford a T-bone and a six-pack."

He doesn't anticipate a vacancy any time soon, so he's reinvesting in his roadside inn.

"I've already added wireless and I just purchased flat screen TVs for the rooms," he said. "I'm going to put on a new roof, upgrade the toilets and showers and spruce up the place.

"I'm putting the money back into circulation."

Construction has been a boon to merchants, including Ed Lehrke, owner of Ed's North Country Meats. Workers staying in RVs and campers stop for meat for their grills. Or, they come for sandwich meat from the pork loins and beef rounds fresh off the smoker parked on the locker's sidewalk, sending the aroma through

downtown.

While the 200-plus construction workers this summer present the likelihood of even more business, Lehrke said he's most excited about the permanent jobs.

"It's been good for us and it's only going to get better when more construction workers come," he said. "But, overall as a community, I look forward more to the (47) jobs that will stay. It's not so much for my business, but just about keeping the town and school alive.

"You drive up and down the streets and see lots of empty houses. So, the bigger thing is the prospect of the big

picture."

Although the oil boom here is on a smaller scale, the resurgence could be more sustainable than western North Dakota's success with oil. That supply is finite. Here in northwestern Minnesota, new oil comes in every fall.