Hold on for better 2007 Indiana farm income, ag experts say

"As we use more corn for ethanol production, crop prices are likely to go up," said Chris Hurt, a Purdue agricultural economist.

Hurt predicted Hoosier farm incomes could be 40 percent to 60 percent lower than in 2005. Higher fuel and fertilizer costs are driving incomes down, he said.

Hurt urged farmers to "hold on, hold on, hold on" for 2007, when a handful of new ethanol plants begin operation.

The crop briefing coincided with the release of the U.S. Department of Agriculture's monthly crop production report. Hurt was joined at the briefing by Greg Preston, director of the Purdue-based Indiana Agricultural Statistics Service (IASS), and Andy Miller, director of the Indiana State Department of Agriculture. Purdue's Dean of Agriculture Randy Woodson served as moderator.

Preston said Indiana farmers are expected to produce 893.5 million bushels of corn this year at an average of 167 bushels per acre. State soybean production is estimated at 273.8 million bushels, averaging 49 bushels an acre. The estimated corn yield is 13 bushels per acre higher than 2005, while the projected soybean yield is unchanged from one year ago. The estimates are based on surveys with Indiana farmers.

The state-record yields for both corn (168 bushels per acre) and soybeans (51.5 bushels per acre) were set in 2004.

"Grain storage could be an issue this year," Preston said. "Farmers should start thinking about where they'll put all that grain."

Farmers already have more corn than the market demands, Hurt said. Increased ethanol production could eat into the excess, he said.

"There's a real potential for a record corn yield," Hurt said. "That is certainly very pleasing to our producers. We're going to have at least one more shot of low prices this fall, and that's because we have, on a national basis, about a 2 billion bushel carryover of corn. We have an awful lot of old crop corn that is not going to be utilized and will stay in storage.

"The good news is that this year, on a national basis, we're going to be producing about 11 billion bushels of corn, but we're going to be using about 12 billion bushels of corn. So we'll be using up about a billion bushels of the surplus corn stock."

Indiana is quickly becoming a major player in the ethanol industry, Miller said. State officials today planned to announce Indiana's 12th ethanol plant, he said.

"I've had more people asking me about corn, and that's because of ethanol," Miller said.

"Clearly, the advent of ethanol is changing the fundamental dynamics of the grain market. When you talk to the folks at USDA and other places, there are so many dynamics at play that to have a clear crystal ball about what will happen is not possible right now. I will tell you that what I think we'll see is grain flows will change: where we ship, how we ship and to whom we ship is going to be altered. You're probably going to see pressure on some traditional handlers of grain. But you're also going to see the advent of a new group of handlers of grain."

If the ethanol trend continues, a significant portion of Indiana's corn crop could eventually be used to make fuel, Hurt said.

One ethanol plant operating now could use 4 percent of the projected 2006 Indiana corn crop, Hurt said. That percentage will grow exponentially as more plants come on-line.

"There are now four ethanol plants under construction in Indiana, which should be in production in mid-2007," he said. "With those, we move from 4 percent of our corn use for ethanol to 16 percent of the 2006 crop. When we get to 1 billion gallons of ethanol production, we would be using 40 percent of the corn we are expected to produce in 2006. That's a big deal — from 4 percent to 40 percent of the corn produced in the state. That's not a transition, that's a revolution."

Indiana's corn and soybean yield estimates are above the national projection, according to the U.S. Department of Agriculture. Nationally, the USDA forecasted 2006 corn production at 11 billion bushels, with an average yield of 152.2 bushels per acre. If realized, the national corn yield would be 4.3 bushels per acre higher than in 2005. U.S. soybean production is estimated at 2.93 billion bushels, an average yield of 39.6 bushels per acre, which is down 3.7 bushels per acre from one year ago.

The USDA crop report is available online.

Writer: Steve Leer, (765) 494-8415, sleer@purdue.edu

Sources: Chris Hurt, (765) 494-4273, hurtc@purdue.edu

Greg Preston, (765) 494-8371, gregory_preston@nass.usda.gov

Andy Miller, amiller@isda.in.gov

Ag Communications: (765) 494-2722;
Beth Forbes, forbes@purdue.edu
Agriculture News Page

Related Web sites:
Purdue Department of Agricultural Economics

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