Cash, Corn, and Climate

University of Louisville Department of Urban and Public Affairs

Corn, Cash, & Climate Climate Change and Indiana’s Corn Business

Josh Staten

4/20/2015

A study on the effects of climate change on the State of Indiana’s number one cash crop.

Introduction

Corn is one of the most important crops in the United States (US); we use it for food, we use it

for fuel, we use to in medicine, we use it in building materials, and in countless other items. It has been

a staple of our civilization since before the first Europeans stepped foot in North America centuries ago.

As we have grown as a nation our demand for corn has also risen making it a major cash crop and large

contributor to our nation’s agricultural business while touching nearly every aspect of the American

economy. As our population continues to grow and the usage of corn continues to rise particularly in the

usage of fuel products such as ethanol the national demand for corn will only increase in the years to

come.

There is one major problem facing US agriculture which includes our corn crops; climate change.

We are already seeing the impacts of sustained drought throughout the Southwest and Midwest, just

this spring Governor Jerry Brown of California had to order restrictions on water usage for many

California residents. While these cuts at this time did not include the state’s agricultural industry if the

drought continues and the water shortage worsens it is not hard to fathom a reduction in all water

usage including industrial and agricultural use. If these sorts of policies become a mainstay for areas of

the in southwest and even spread to the Midwest as some are predicting our national corn production

will suffer which will increase demand and drive the prices up.

So what does this mean for American corn both at home and around the globe? A June 2014

report Water & Climate Risks Facing U.S. Corn Production: How Companies & Investors can Cultivate

Sustainability1 published by Brook Barton and Sarah Elizabeth Clark states that the Midwestern drought

leading up to 2012 drove corn prices up to a record eight dollars a bushel. This is a very important

statistic when you take into consideration that the US supplies 40 percent of the world’s corn crop; a

crop that makes up a $1.7 trillion industry worldwide, which is the equivalent of Australia’s entire GDP

1 Barton, Brook & Clark, Sarah Elizabeth. Water & Climate Risks Facing U.S. Corn Production: How Companies & Investors can Cultivate Sustainability. A Ceres Report. Jun 2014 Print

(Barton & Clark, 2014)! So it is safe to say that corn and specifically US corn is not easily replaceable, and

the consequences of a loss in US production would be felt throughout the world.

Essentially it means we have to find suitable places throughout the US to make up the

production losses from the drought struck lands of the Midwest and Southwest. From 1997-2012 (2012

being the last publication of the United States Department of Agriculture’s (USDA) Census of Agriculture

report which is published every 5 years) one state that has increased corn production is that state of

Indiana. Indiana has not suffered through drought as of yet due to Climate Change and has benefited

from an increase in rainfall allowing it to increase its production and reap the benefits of rising corn

prices. This paper will examine the effects from the rise in corn production throughout the state of

Indiana and if there is any evidence Climate Change will show effects on its crop yields throughout time

as it has already done in other parts of the country.

Corn in Indiana

Graph A on the next page was created from the USDA’s annual reports on Crop Production

Costs2 and it shows the percentage in rise of corn prices from the years 1997-2012. Graph B on the

following page shows percentage rise in Indiana corn production over that same period of time. In

Graph A you can see that the drought throughout this time drove corn prices up by 70 percent per

bushel. Graph B shows that as corn prices have risen indicated a shortage of supply the State of Indiana

has greatly increased their own production revenues by close to 1000 percent per acre. These two

graphs show us that Indiana, which hasn’t been affected by drought, has begun to produce more corn to

meet the high national and global demand. Of course this has also lead to greater profits for the state

and its agricultural industry; by the end of 2012 Indiana’s corn bushels by themselves were valued at

over $4 billion.

2 National Agricultural Statistics Service. United States Department of Agriculture. Crop Production Costs: Corn and

Soybean Production Costs and Returns, Heartland Region 1/ (Annual Reports from 1997-2012)

Graph A

The corn industry as discussed in the prior paragraph plays a major role in Indiana’s economy.

According to INcontext a publication put out by Indiana University’s Kelley School of Business, Indiana’s

agriculture industry provides 190,000 jobs and contributes $37.9 billion in economic output3. The

growth of corn has also made Indiana home to twelve operating ethanol plants with 4,100 full-time jobs

making it the sixth biggest producer of ethanol in the US generating the state $538 million in Gross State

Product and $232 million in labor income for the state4.

Indiana already has a reputation of being a state who’s scenery is dominated by agriculture and

farming but as you can see by Graph C, over the same 15 year period that corn prices and production

rose the amount of land acreage dedicated to corn production rose by 10 percent even getting as high

as 15 percent at one point back in 2007. Taking into consideration that Indiana is the 34th largest state in

3 Hall, Tanya. Farm Financials. Incontext, A publication of the Indiana Business Research Center at IU’s Kelley

School of Business. http://www.incontext.indiana.edu/2014/sept-oct/article2.asp 4 Hayhurt, Susan. Corn is Kong of the Crops. Farm Flavor Magazine. http://farmflavor.com/us-ag/indiana/crops-

forestry-indiana/corn-king-crops/

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Graph B

Graph C

total acreage at 23.157 million acres and that 6.25 million of those acres were dedicated to corn,

which means that close to 27% of Indiana’s total acreage was used for corn by the year 20125.

As mentioned earlier Indiana’s corn crop in 2012 alone was valued over $4 billion dollars, most

of which went to family or individually owned farms as these types of farms make up about 90 percent

5 National Agriculture Statistics Service and United States Department of Agriculture. 2012 Indiana Corn County

Level Data. 2012

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of Indiana’s farming community6. You would think then that with almost 90% of farms being owned by

families or an individual that farms in Indiana would be thriving. This is incorrect however, over the 15

year study period from 1997-2012 the total number of farms in the state dropped by over 25% as

demonstrated on Graph D on the next page. So then how does a state that has a rise in production, is

Graph D

benefiting from higher prices, and has an overwhelming majority of the total farm ownership as families

or individuals suffer a reduction in the total number of farms by more than 25%? The initial reaction

would be that family farms are being bought out by corporate farming groups but we have already

shown this not to be true. A possible explanation for the loss in farms yet the increase in lands would be

the rise in production costs that are associated with the rise in bushel price. This puts a higher burden

on smaller farms throughout the state, and is compounded by farms of 260 or more acres account for

only 20% of total farms but collect 80% of farm income7.

6 United States Department of Agriculture. 2012 Census of Agriculture: Indiana State and County Data Volume 1 –

Geographic Area Series – Part 14. Issued May 2014 7 United States Department of Agriculture. 2012 Census of Agriculture: Indiana State and County Data Volume 1 – Geographic Area Series – Part 14. Issued May 2014

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Graph E on the next page shows how much agricultural production expenses rose in just five

years from 2007-2012. Indiana production expenses in 2007 were $6.281 billion dollars and by 2012

they had risen by 45.2 percent up to $9.117 billion, quite the five year increase. The graph shows that

cuts in property taxes by the state and federal government only led to a minor decrease especially when

you consider the nearly $3 billion. It is important to note that the information shown in Graph E takes

into account all agriculture production and not just corn. But we can infer from this that there is a likely

connection between the rise in agricultural production and the drop in the total number of farms

statewide.

Graph E

Climate Change in Indiana

Indiana has not yet felt the effects of climate change to the level of other areas around the

country but many reports suggest that it is coming. In May of 2014 the White House released a report

stating that states in the Midwest such as Indiana and Illinois will start experiencing smaller crop yields

$0$200$400$600$800

$1,000$1,200$1,400$1,600

Agricultural Production Expenses (IN)

2007

2012

as the century progresses8. The report suggested that while heat will play a role in the reduction of crop

yields increasingly wet springs will actually cause more damage by pushing back the planting season for

farmers. A similar report published by Purdue University in February of 2008 suggests that total annual

precipitation could increase up to 20% in Northern Indiana alone and that “extreme” precipitation

events could increase up to 40% over Northern and Southern Indiana9. The Purdue University report

predicts that temperatures in the hottest two and half weeks of the year 2005 could occur for seven to

ten weeks; this would represent an increase in the Southern Indiana of more than 200% over current

conditions (Purdue University, Feb. 2008).

The Purdue report suggests mixed results for agriculture in Indiana, rising temperatures will

likely lengthen the growing season throughout the fall which will make up for a delayed planting season

in the Spring. Even with the ability to compensate for growth periods the warmer summers are likely to

increase the amount of pests that would normally not survive the winters, this will increase the number

of pests during the growth season that will affect crops. Extreme rainfall especially during the planting

months and heat waves over the summer months will also impact crop yields (Purdue University, Feb.

2008).

The exact effect climate change has on Indiana’s corn production is unclear and likely will be

determined on an annual basis. As was pointed out earlier in Graph E however the production cost of

corn has risen drastically in recent years and as farmers try and keep up with demand and combat the

different effects of climate change such as soil erosion, insects, in some instances shorter growth

periods, and extreme weather they will continue to have to spend more money. As this happens as was

8 The White House. Fact Sheet: What Climate Change Means for Indiana and the Midwest.

https://www.whitehouse.gov/sites/default/files/microsites/ostp/INDIANA_NCA_2014.pdf. May 6, 2014 9 Purdue University Discovery Park, Purdue Climate Change Resource Center. Impacts of Climate Change for the

State of Indian. http://www.purdue.edu/discoverypark/climate/assets/pdfs/ClimateImpactsIndiana.pdf. February 2008

shown in Graph D the likelihood of the total number of farms will continue to drop of which a larger

proportion will be smaller farms with less money to spend on production cost.

What does this all mean?

For the most part Indiana’s corn business is thriving. The state has answered the demand

nationally and globally for corn in the wake of devastating droughts in other corn producing states in the

Midwest and Southwest. Despite a 25% reduction in the total number of farms likely due to increased

production costs, the state and its farmers are seeing historic revenue returns from corn sales. Other

corn related products such as ethanol are not only bringing in excess funds for the state and supplying

more jobs for Hoosier workers. However each year that climate change progresses and becomes more

prevalent throughout the state the more farmers will have to spend on the crop production which could

at some point catch up to or become more than the expected rate of return. Another consequence that

will occur is smaller and less profitable farms will continue to be forced out of the business as they

cannot keep up with production costs.

Graph Methodology

The time period of 1997-2012 was chosen based upon the release of the USDA’s Census of

Agriculture reports which are released every five years. I used the four census reports along with the 15

annual USDA Crop Production Cost reports to create a sample time period as the reference for the corn

statistics used in Graphs A-E.

Appendix I

Indiana Corn Yields (by year)

USDA - NASS, Census of Agriculture/Indiana

Year Farms % Change Acres % Change Bushels % Change

1997 35592 0.00% 5612786 0.00% 659083589 0.00%

2002 27031 -24.05% 5240230 -6.64% 607904323 -7.77%

2007 26520 -25.49% 6468513 15.25% 961903661 45.95%

2012 26481 -25.60% 6174513 10.01% 599046357 -9.11%

Appendix II

Value of Corn Production Per Acre

USDA-NASS, Statistics by State/Indiana

Year Acres* % Change Price** % Change

1997 -23.66 0.00% 2.50 0.00%

1998 -89.58 -478.61% 1.91 -23.60%

1999 -130.42 -651.23% 1.67 -43.46%

2000 -121.5 -613.52% 1.75 -44.91%

2001 -66.94 -382.92% 1.80 -40.00%

2002 1.28 -94.59% 2.30 -11.11%

2003 -14.89 -162.93% 2.10 -17.39%

2004 5.57 -76.46% 2.10 -19.05%

2005 -120.63 -609.85% 1.71 -37.62%

2006 79.17 234.62% 3.23 42.69%

2007 56.59 139.18% 3.23 22.60%

2008 106.38 349.62% 4.12 50.15%

2009 44.76 89.18% 3.61 26.94%

2010 131.96 457.73% 4.39 52.35%

2011 128.63 443.66% 4.40 43.28%

2012 256.82 985.46% 5.71 72.95%

*(Total Gross Value of Production - Total Costs)

**Price Per Acre

Appendix III

USDA - 2012 Census of Agriculture

Agricultural Production Stats

Expenses

(Millions)

Percent Change

Expense 2007 2012 Indiana U.S.

Feed $1,092 $1,592 45.8% 54.2%

Fertilizer $888 $1,444 62.6% 57.6%

Cash Rent $702 $1,052 49.9% 58.2%

Seeds $515 $928 80.2% 66.0%

Livestock and Poultry Purchases $511 $509 -0.5% 9.4%

Supplies and Repairs $424 $523 23.2% 18.7%

Chemicals $523 $564 50.9% 63.4%

Hired and Contracted Labor $374 $487 38.3% 26.8%

Gasoline, Fuels, and Oils $352 $458 33.0% 28.4%

Property Taxes $344 $261 25.6% 19.4%

Custom Work $208 $128 104.3% 61.6%

Other $63 $1,171 44.9% 24.0%

Total $6,281 $9,117 45.2% 36.4%

(Graph and Statistical Breakdown Courtesy of

Incontext.indiana.edu/2014)

(Source data - USDA 2012 Census of Agriculture)

Bibliography

Barton, Brook & Clark, Sarah Elizabeth. Water & Climate Risks Facing U.S. Corn Production: How

Companies & Investors can Cultivate Sustainability. A Ceres Report. Jun 2014 Print

Hall, Tanya. Farm Financials. Incontext, A publication of the Indiana Business Research Center at IU’s

Kelley School of Business. http://www.incontext.indiana.edu/2014/sept-oct/article2.asp

Hayhurt, Susan. Corn is Kong of the Crops. Farm Flavor Magazine. http://farmflavor.com/us-

ag/indiana/crops-forestry-indiana/corn-king-crops/

National Agricultural Statistics Service. United States Department of Agriculture. Crop Production Costs:

Corn and Soybean Production Costs and Returns, Heartland Region 1/ 1997-1998















National Agriculture Statistics Service. United States Department of Agriculture. 2012 Indiana Corn

County Level Data. 2012

Purdue University Discovery Park, Purdue Climate Change Resource Center. Impacts of Climate Change

for the State of Indian.

http://www.purdue.edu/discoverypark/climate/assets/pdfs/ClimateImpactsIndiana.pdf.

February 2008

United States Department of Agriculture. 1997 Census of Agriculture: Indiana State and County Data

Volume 1 – Geographic Area Series – Part 14. Issued March of 1999


Volume 1 – Geographic Area Series – Part 14. Issued June 2004


Volume 1 – Geographic Area Series – Part 14. Issued February 2009 Updated December 2009


Volume 1 – Geographic Area Series – Part 14. Issued May 2014

The White House. Fact Sheet: What Climate Change Means for Indiana and the Midwest.

https://www.whitehouse.gov/sites/default/files/microsites/ostp/INDIANA_NCA_2014.pdf.

May 6, 2014

Documents

Cash, Corn, and Climate