Apparently Minnesota was a hotbed of UFO conspiracies in that time, and there was a particular incident with a sheriff's deputy that this is referencing.
Hawley responded directly to a question about it once too.
“Very early on, I asked, ‘What is our Mike Yanagita?'” Hawley said. “Mike Yanagita was the character in the movie ‘Fargo’ who Marge met after being friends in high school and they had a meal, and he talked about marrying his high school sweetheart and then she died and he was so lonely. But then, later, you found out he made all that up. And I thought, ‘Why is this in the movie?’ It has nothing to do with the movie — except the movie says, ‘This is a true story.’ They put it in there because it ‘happened.’ Otherwise you wouldn’t put it in there. The world of ‘Fargo’ needs those elements; those random, odd, truth-is-stranger-than-fiction elements.”