A Dynamic Time for Indiana Agriculture
Appeared on Inside INdiana Business with Gerry Dick

The agriculture and agribusiness industries in Indiana are in the midst of one of the most dynamic periods ever experienced. Demand for agricultural crops to feed our nation's growing livestock herds, growing demand to feed burgeoning middle class populations around the world and new demand to provide fuel and other industrial products far exceed any levels of the past. The commercialization of remarkable new technologies and the implementation of new policies and regulations also make for a unique and dynamic time in this industry.

To better understand where agriculture is positioned at the start of 2008, it is helpful to reflect on some of the key agricultural developments from last year. Commodity prices jumped significantly in 2007 for almost all Indiana farm raised products. Between December 2006 and December 2007, the price of a bushel of Indiana corn went from $3.23 to $4.09 and today is even higher at about $5.04. Hoosier soybeans rose from $6.38 to $10.80 per bushel and then broke all-time records of over $13.00, now settling around $12.78. As a result of a world shortage of wheat, Hoosier wheat prices rose from $4.46 to $7.80 per bushel and today are near $9.40. Milk prices saw a dramatic rise in 2007, moving from $13.20 to $21.60 per hundredweight. Indiana egg prices rose from $0.67 a dozen in December of 2006 to $1.33 a dozen in December 2007. Hog prices were one of the few exceptions, averaging a low $47.10 for the live hog contract in 2007 and could fall further this year about $46.30, the lowest in five years.

The overall farm economy is especially healthy, buoyed by these strong market prices. Net cash income for the entire U.S. agricultural sector soared to $85.7 billion in 2007. This is a nearly 30% increase over 2006 and only slightly below the prior record of $85.8 billion from 2005. The balance sheet of the agricultural sector is also extremely strong with national farm equity topping $2 trillion for the first time ever and debt-to-asset ratios at an all time low. Farm assets are supported by continually increasing land values nationwide but farmers are also keeping their operating debt levels extremely low despite record high production costs.

Many agribusiness companies are reaping the financial benefits of a healthy farm economy as well. Stock prices of many organizations nearly doubled in 2007. Leading the list were companies like Terra (fertilizer) +368%; CF Industries (fertilizer) +331%; CNH (machinery) +147%; Monsanto (seed and genetics) +111%; and Deere and Co. (machinery and credit) + 95%.

Technology continues to play an important role in driving even greater efficiency for the industry. Improvements in seed genetics allow farmers to plant crops that are resistant to crop protection products, insects and other crop pests. Work is underway in public and private laboratories to develop drought resistant crops, higher yielding crops, and even crops that are tailored for specific consumer and industrial demands. Equipment companies also continue to make advances in machinery incorporating satellite technology for on-the-go yield monitoring, precision fertilizer applications and now even automatic steering of tractors.

Another factor affecting the industry is agricultural policy change at the Federal level. The new energy bill that was signed into law by President Bush in December includes the Renewable Fuels Standard (RFS) which mandates the national use of 9 billion gallons of ethanol in 2008. In 2006, 4.8 billion gallons of ethanol were produced and the U.S. industry currently has a 7 billion gallon production capacity on-line. The RFS increases to 36 billion gallons by 2022, of which more than half will likely derive from new cellulosic materials, not just corn.

The U.S. Congress is debating the structure of the next set of Federal farm programs – otherwise known as the "Farm Bill." This legislation will set federal payment programs for farmers for the next several years and also includes food stamps and nutrition programs, conservation, rural development, energy and trade programs, among others. The legislation is currently at risk as congressional members struggle to find needed increases in funding for some proposed programs and the White House is threatening a veto, citing a lack of reform in existing payment programs.

Strong markets, breakthrough technologies and far-reaching policy initiatives all contribute to the dynamic nature of today's agriculture industry. These factors are not automatically sustained, however. It takes industry leadership, the pursuit of continued research and innovation, and the development of even more market opportunities for our Indiana agricultural products.

Beth Bechdol is Director of Agribusiness Strategies at Ice Miller LLP. Beth is not licensed to practice law in any state and does not provide legal services.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.