News From Terre Haute, Indiana

March 28, 2013

Income dries up: Drought of 2012 slowed Indiana farm incomes

Arthur Foulkes
The Tribune-Star

TERRE HAUTE — Hoosier incomes were among the slowest-growing in the country at the end of 2012, according to the U.S. Bureau of Economic Analysis.

Indiana ranked 48th among the 50 states in the final quarter of last year in personal income growth, according to BEA figures released Wednesday. Lower farm incomes – thanks to the worst drought in decades – were a large factor and helped bring down the state’s overall income figures, the BEA reported.

“It was the drought, the 2012 drought,” Jim Luzar with the Vigo County Purdue Extension office said Wednesday. Pork, milk and poultry producers were especially hard hit thanks to higher feed prices, he said. The drought drove down crop yields, driving up crop prices. Because many crops are used for animal feed, those higher prices negatively affected livestock producers in 2012, Luzar said.

For livestock or poultry producers, feed is often more than half of the cost of production, he said.

Federally subsidized crop insurance helped many farmers recover some of their losses from lower crop yields in 2012. Thanks to the drought, those payments were expected to reach a record level nationally at nearly $16 billion, according to The New York Times. That’s up from $9.4 billion in 2011.

“For individual farmers and farmers as a whole, [crop insurance] was a huge benefit in 2012,” said Darrel Good, an economist in the Department of Agricultural and Consumer Economics at the University of Illinois.

Crop insurance – for those farmers who purchase it – pays farmers for crops they were unable to produce. The insurance pays current market rates for the lost yield, and at harvest time last year a bushel of corn was selling for a hefty price of $7.5 a bushel, Good said Wednesday, meaning insured farmers received good prices for lost crops.

“Those [farmers who] had high levels of coverage were paid for their lost bushels at a very high rate,” he said.

The federal government pays about 62 percent of the premiums for crop insurance, according to The New York Times. It also aids private companies selling the insurance, the Times reported.

Nevertheless, the losses for livestock producers were significant last year, according Corinne Alexander, a professor in the Department of Agricultural Economics at Purdue. Writing last winter for the Indiana Business Review, Alexander stated the pork industry responded to record feed prices by cutting herd sizes. “Even so,” she wrote, “the [pork] industry will face large losses over the next six months, and hog operations in a weak financial position will need the support of their lenders and other creditors.”

Losses are also “currently the norm” for dairy farmers, she wrote.

Despite the blow to the agricultural sector, personal income in Indiana managed to grow overall in 2012 by 3.7 percent compared with the year before, according to the Bureau of Economic Analysis. That put the state 16th overall. Illinois, which suffered an even bigger hit in farm incomes at the end of last year, ranked 42nd overall with personal income growth of 2.5 percent.

Normal weather conditions in 2013 would allow crop yields to rebound and could result in as much as a 30-percent drop in prices for corn, soybeans, wheat and hay by the end of the year, Alexander wrote. If that happens, livestock producers will get a break in their costs. But “any weather problems [this year] would result in corn and soybean prices that would continue to provide major challenges for livestock producers,” she wrote.

For the complete BEA personal income report and further data, visit the agency’s website at www.bea.gov.



Reporter Arthur Foulkes can be reached at 812-231-4232 or arthur.foulkes@tribstar.com