Welcome to Purdue’s snapshot of the Indiana agricultural economy for 2015. There’s some positive news but also major areas of concern. First the good news! Lower grain prices have reduced feed costs and animal producers are having record positive margins in 2014 and 2015. All major live-stock species are seeing record high farm prices for animals and animal products including eggs, milk, chickens, turkeys, cattle and hogs. Also, total Indiana net farm income appears to be holding for 2014 near $2.7 billion, similar to 2013. But, there are already disturbing signs that the income picture is changing quickly as the grain sector is forced to adjust to much lower prices with almost no decrease in production costs, at least not yet. Grain farm margins have largely collapsed as record Indiana yields in 2014 have not been enough to offset price declines. If we just consider crop farms, their incomes are expected to be down more than 30% in both 2014 and again by that margin in 2015. So, it is the high incomes from animal related farms that are holding up the total net farm incomes for 2014.

Indiana agricultures biggest problem is that crop prices have fallen below the record high costs of production. A number of farms will have negative margins at current expected prices. Our Purdue opinion is that grain prices are in a multi-year period of downward moderation from the high-price era. If correct, crop margins will be tight and adjustments will have to occur during the coming years.

The implications for crop agriculture may be substantial. Almost every-one in crop agriculture from input suppliers, to farm operators, to land-lords got use to high revenues. Now crop revenues may be sharply lower in coming years and downward adjustments are likely. Who is going to take less as this downward adjustment period proceeds? Will input suppliers cut prices? Will producers cut their application rates? Will farmers’ margins collapse? Will cash rents drop? Will land values fall? Keep reading?