By MICHELE F. MIHALJEVICH
Indiana Correspondent

WEST LAFAYETTE, Ind. — Indiana’s farm income could reach $3 billion for 2010, not far below the record $3.2 billion in 2008, a Purdue University agricultural economist said last week.

High grain prices are a primary reason for a projected 25 percent increase in income over last year, Chris Hurt said. “These are impressive numbers,” he noted. “The 25 percent increase is very reasonable and could be more than that.”

As prices farmers receive for corn and beans have increased, variable costs of production – seed, fertilizer, chemicals, fuel, crop insurance, repair – have gone down, leaving producers with more money per acre, Hurt explained.

In 2009, for corn in Indiana, variable costs were estimated to be $425 an acre, with producers able to get about $3.60 a bushel, he said. In 2010, variable costs are estimated to be $83 less, at $342 an acre, with corn prices in the $5.25 range.

For soybeans, variable costs were estimated to be $223 an acre in 2009, with beans selling for $9.65 a bushel. For 2010, variable costs have decreased to $183 an acre, with beans selling around $11.50.

Prices for other farm commodities, including hogs and milk, are also expected to be up, he said, adding the better income levels should lap over into 2011.

From 1998-2007, Indiana’s farm income averaged $1.3 billion a year, Hurt noted. With $3.2 billion in farm income in 2008, and $3 billion this year, the farm sector has nearly doubled the income it had for the previous 10 years.

Most grain farmers will be happy with higher prices for corn and soybeans, but livestock producers may not be, said Michael Baise, strategic issue coordinator for the Indiana Farm Bureau.

“If you have grain and didn’t price it when it had a 4 in front of it, you’re pretty tickled. It’s not every day you can sell corn for $5. But if you have critters who eat corn and beans, you could see a dramatic increase in costs,” he explained.

Because most farmers are pretty sophisticated marketers, they probably locked in prices for feed when costs were less, Baise stated. The ones who did not will be squeezed.

Dairy producers, who are starting to see some increases in profit margins, could see those margins fall again if they must purchase grains at higher prices, said Mike Schutz, a professor of animal sciences at Purdue.

“For dairy, they had an absolutely dreadful 2009, but for most of 2010, prices have been somewhat better,” he explained. “Dairy producers lost anywhere from $350 to $1,000 per cow through 2009, thanks to relatively high feed prices and low milk prices.”
Costs of production in the dairy industry are about $16 per cwt., but could increase to more than $17 if corn were to reach $7 a bushel, he added. With negative margins expected to continue for the next couple of months, dairy producers with large cropping operations are in a better position because at least they can make money on some aspect of their operation, Schutz said.

The higher grain prices shouldn’t have the same impact on livestock farmers as they did from 2007 to 2008, when corn went from $2 to $4 a bushel, Hurt said.

“When the price doubled, farmers had to cut their supplies in order to afford those costs. Now, they’ve already cut their herds, so having to pay more for corn won’t throw them into big losses,” he said.

Hog producers saw demand go down because of decreased exports caused by the global recession, and because the public cut back its pork consumption in light of the H1N1, or so-called “swine flu,” situation that started in April 2009, Hurt noted. “It was a double whammy for pork and it really hurt them last year,” he said. “It’s going to be a lot better.”

The pork industry is concerned about the rising costs of inputs for hogs and all livestock, said Joshua D. Trenary, director of business development for Indiana Pork.

“Pork producers over the past few months had enjoyed a well-deserved period of profitability. Recently, however, the switch from feeding old corn to feeding the new crop from this year created a jump in carcass weights,” he said.

“This typically happens, but since this year’s corn was far superior to last year’s corn, these carcass weight jumps were more than expected and placed more pork on the market without any real expansion to production. Hog futures continue to decline. The average carcass weight of a hog is still up about 1.5 percent from a year ago.

“Not only are our input costs increasing, but our hog prices are decreasing. This is starting to stretch some producers pretty thin once again,” Trenary added.

Hurt expects the prices consumers pay for food to be up about 3 percent next year, compared to a 5 percent increase in 2008. “I don’t think we’ll have anything like that, but we are going to have higher prices across all the food commodities,” he stated.

“Food manufacturers are ready to pass on the cost increases that they have been absorbing. They’re going to be raising their wholesale prices and grocers will pass that on. They might absorb those costs for a while, but eventually they can’t continue to do that, and start raising their prices.”

Even at $4-$5 a bushel for corn, consumers are probably still paying more for the box than they are for the cornflakes inside it, Baise said. “The public will hear about the higher corn prices and wonder if that means their corn flakes will be more expensive. I don’t think consumers will fall over from sticker shock in the grocery store,” he explained. “But part of what’s driving corn and soybean prices higher is the tremendous demand for food outside the United States.”