Died-in-the-wool agriculture bankers in Wahpeton, N.D., wouldn't be the most likely source of financing for a newfangled company developing a novel idea to turn wheat straw into fiberboard.

But North Dakota banker Paul Olson laid down $12 million for the venture, mostly because it had the U.S. Agriculture Department's blessing - and capital.

Mr. Olson said the department's Alternative Agricultural Research and Commercialization Center has given new life to his farm customers.

"When we saw an opportunity to be involved with a new project and a new industry that will help all our farmers, we jumped at it," said Mr. Olson, president of Norwest Bank of North Dakota's $70 million-asset Wahpeton office.

The center was created by Congress in 1990 mainly to develop new uses for agricultural crops and to facilitate markets for new crops that wouldn't get government subsidies. Since 1993 its backing has helped lure bankers to projects they might not otherwise consider.

Such alternatives and other "value added" uses for farm products are important for agricultural lenders and their farm customers as they look to the future of farming.

Additional income and ready markets for farm products are crucial to farmers' ability to survive and compete, particularly as some government subsidies threaten to diminish or subside.

The center lends to the new companies or makes equity investments in them.

Projects in which the center has invested include windshield washer fluid made from corn, milkweed floss in hypoallergenic bedding, and low- grade wool as an environmental clean-up agent.

Many rural farm banks would be hard-pressed to finance loans for such offbeat projects without a capital jump start, said W. Bruce Crain, director of the center.

In the ordinary course of things, a loan officer who approved a credit for making pillows or comforters out of milkweed would "probably get his head handed to him on a pillow," Mr. Crain said.

But for bankers, "the USDA stamp of approval ... legitimizes" such new ideas, he said. "They are more likely to commit resources to commercialize."

In Wahpeton, the center bought $1 million of stock in PrimeBoard Inc., a new company that manufactures particle board using wheat straw. Mr. Olson's bank made $12 million in loans to PrimeBoard in September 1994.

Sen. Kent Conrad, D-N.D., who introduced legislation for the center in 1988, said it is an "extremely positive" development for bankers.

"This allows the banks to participate with some assurance that there's going to be a real commitment made to a particular project," he said.

In its first two years, the center invested $15.3 million in equity capital in 37 projects, which was matched by $43 million from private investors.

To invest, the center requires at least a 50% match from the private sector. It averages a 3-1 leveraging ratio.

The center gets its funding from Congress and but says it intends to become self-supporting eventually.

Minnesota Valley Bank of Redwood Falls, Minn., has looked at value-added from another direction. Among other projects, it has financed farmers buying shares in a quasi-cooperative, Minnesota Corn Processors, which produces corn derivatives.

Although the plant itself was beyond the financing abilities of the $142 million-asset bank, Minnesota Valley "played the support role in funding the farmers to get into the project," said Doug Bultman, the bank's president.

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