Agribusiness grows in region, despite low commodity prices

January 1st, 2017

By Lucretia Cardenas | Greater Fort Wayne Business Weekly

Agribusiness is only becoming more important to the northeast region’s economy as the business of processing expands in the area and the trend to “eat local” continues.

But even as the industry expands and grows, the fact that the market is cyclical and ultimately tied to commodities cannot be avoided.

Some of the lowest prices in 10 years for corn, soybeans and wheat were seen in 2016.

More than 13,000 farms are in operation across northeast Indiana, according to the most recent census, and that doesn’t include all of the businesses that process and support the farming industry.

With more than 2 million acres of land being used for crops and livestock, additional acreage in the region is used to manufacture and sell farm equipment, convert corn into ethanol and pasteurize milk, among other uses.

Part of northeast Indiana’s success in the agriculture industry is its proximity to other states and access to waterways and railways, as well as the business climate, said Ted McKinney, the state’s ag director.

“We have a very reliable regulatory climate in the state, which is advantageous,” McKinney added.

State policymakers are cognizant of the importance of the agriculture industry and reacted this year to assist farmers in keeping taxes on farmland at reasonable rates, given the depressed crop market the industry has experienced over the past three years, he said.

Lawmakers in the spring of 2016 made changes to the taxing formula so property taxes take into consideration commodity prices.

Price crunch

“The overall situation is that crop agriculture had a boom period from 2006 to 2013 when crop prices were moving upward faster than costs,” Chris Hurt, professor of agriculture economics at Purdue University, said in an email. “Starting with the 2014 crop, prices have been dropping faster than costs are coming down, setting up a period of narrow, or even negative margins. Prices for the 2016 crops of corn, soybeans and wheat are expected to be the lowest in 10 years. Weak crop prices and narrow margins are expected for two more years (2017 and 2018 crops).”

As a result, farm incomes were depressed in northeast Indiana due to poor 2015 yields, especially for corn, Hurt said. Some farms were assisted by government program payments in October.

“The issue for crop agriculture is that costs were bid up during the high-income years, and crop prices dropped below costs starting with the 2014 crop,” Hurt said. “Crop agriculture since has been experiencing narrow margins or even losses for some. These narrow margins are encouraging farm families to cut expenses. The most progress has been made in lowering costs in three areas: land costs, fertilizer and family living costs.”

But, income is set to improve.

The strong yields from 2016 will be the foundation for a recovery of farm income in 2017, Hurt said. However, incomes are still expected to be about 40 percent lower than they were from 2010-2014.

The U.S. Department of Agriculture reported corn yields of 133.4 bushels per acre for 2015; in 2016, the region saw 163 bushels per acre, which is about 8 bushels, or 6 percent, better than trend.

Soybeans in northeast Indiana also saw a below-trend year in 2015, averaging 44.6 bushels per acre. This year saw a record high yield for the region, with 60 bushels per acre, which is 12 bushels, or 24 percent, above trend, according to the USDA.

Livestock, a big business for northeast Indiana, also saw lower prices in 2016 compared to 2014 and 2015, when animal production hit record highs. Farms raising livestock have expanded, in part due to the drop in feed prices — think corn and soybeans.

Milk producers were at about break-even pricing, and a little improvement is expected for 2017, Hurt said. Hog producers lost about $11 per head in 2016, and they aren’t expected to see improvement in the new year. Beef cattle returns will be down sharply in 2017 as cattle prices continue to drop. Northeast Indiana egg producers will have a bright spot, with egg prices expected to be slightly higher in 2017.

The cost of farming

With farm income slumping, so to has the price per acre for farmland.

Average-quality land in northeast Indiana dropped 7 percent to $7,243 per acre by mid-2016, compared to more than $7,800 per acre in late 2013, according to Purdue surveys.

Cash rents are down about 6 percent over the past two years. The surveys showed northeast Indiana’s average cash rent prices falling from last year for all three classes of farmland. It fell 9.9 percent to $236 per acre from $262 for top-quality farmland; 5.4 percent to $192 from $203 for average quality; and 3.8 percent to $150 from $156 for poor quality.

With the expectation of tight margins continuing into 2017, land values and rents are expected to be down 4 percent and 6 percent, respectively, in 2017, Hurt said.

Agribusiness growth

Another trend taking place in northeast Indiana is one that has been on the rise for a number of years — growth in processing facilities and agribusiness.

Two recent examples of this agriculture-related economic growth are the addition of a Walmart dairy processing facility and a German field research manufacturer.

Haldrup made known its intention to expand its agricultural business into the United States a couple years ago, and began looking at real estate, ultimately settling in Ossian where it had a Hoosier customer — Tech Services Inc., a national contract agriculture testing company.

Tech Services has been in Wells County for 20 years. Bringing Haldrup to the county also brings the potential to significantly boost local manufacturing as Haldrup expands to South America and Canada.

In October 2014, the company announced it would be investing $13 million to build a new, 24,000-square-foot facility at the Ossian Industrial Park One. At the start of 2016, Haldrup USA began operations at the park in its building that houses 4,000 square feet of offices and light storage and a 20,000-square-foot manufacturing floor. The business hopes to create as many as 65 jobs in the near future.

Walmart plans to build a new milk-processing plant near Fort Wayne and create more than 200 new jobs by the end of 2017, the Indiana Economic Development Corp. said in a statement on March 18.

“For Walmart to select Fort Wayne for its first dairy processing facility is noteworthy,” ag director McKinney said.

The retail giant is expected to develop the 250,000-square-foot-facility on West Pleasant Center Road near the Fort Wayne International Airport. The high-tech plant will produce Walmart’s Great Value and Member’s Mark brands of white milk and chocolate milk for more than 600 Walmart and Sam’s Club stores in Indiana, Illinois, Michigan, Ohio and northern Kentucky.

Also a sign of a growing ag economy is the addition of Huntington University’s agriculture program, McKinney noted.

The Indiana State Board of Education in November approved Huntington’s University’s agricultural education program to be offered through the Haupert Institute for Agricultural Studies. That makes Huntington one of only two higher-education institutions in Indiana that offer four-year degrees in agriculture.

“This new major will allow us to expand our support for the agricultural sector in Indiana. There is currently a shortage of agriculture teachers in Indiana high schools, and this program joins our already strong offerings in education and agribusiness,” Michael Wanous, vice president for academic affairs and dean of the faculty, said in a Nov. 28 announcement.

The agricultural education program will include courses already offered in agribusiness and education, while adding new courses in agriculture and agricultural instruction that will provide the breadth of academic and practical experience needed.

Northeast Indiana farmland prices per acre:

                              2015     2016     % Change

Top quality          $9,061   $8,594        -5.2

Average quality  $7,588   $7,243        -4.5

Poor quality        $6,120   $5,863        -4.2

Categories Business Climate