Farm revenue buoys Iowa economy

While the world economy sputters, the unprecedented strength of the Iowa farm economy has bolstered the state through hard financial times, experts and officials say.

“This is absolutely the best it's ever been for the Iowa farm economy,” said Mike Fitzgerald, Iowa's treasurer for the past 28 years.

Record farm revenue, he said, has boosted Iowa's overall economy, as evidenced by unemployment rates running well below the national average, the state's AAA credit rating and its $1 billion budget surplus.

For the first six months of this year, Iowa's unemployment rate averaged 6 percent, compared with 9 percent for the nation.

Without the farm income surge, Iowa's economy would have weathered the recession no better than those of most other states, said Fitzgerald, a Democrat.

Iowa's annual net farm income averaged slightly more than $6 billion in 2008 and 2009 (the two most recent years for which complete data is available), which compares with an annual average of $2.4 billion in 2000 and 2001, according to U.S. Department of Agriculture statistics.

That increased farm income has rippled through the Iowa economy in the form of implement, vehicle, crop input and grain storage and handling purchases, as well as the construction and remodeling of homes and farm buildings, Fitzgerald said.

“Agriculture is our biggest industry, and you can tell the strength of the Iowa economy by the price of corn and soybeans,” two commodities in which Iowa leads the nation in production, Fitzgerald said.

During the past 5 1/2 years, the average market price for corn, $4.40 per bushel, has been more than twice as high as the $2.05 average price from 2000 through 2005, according to Iowa Agricultural Statistics, a cooperative effort of the USDA and Iowa Department of Agriculture and Land Stewardship.

Soybean prices have averaged $10.33 per bushel since 2006, which compares with $5.67 from 2000 through 2005.

December corn contracts closed Wednesday at $7.25 a bushel while November soybean contracts closed at $13.67 a bushel.

While home equity and stock-based retirement accounts - the repositories of most non-farm Iowans' net worth - have remained flat throughout the past decade, farmers' net worths have soared as climbing commodity prices have lifted Iowa farmland values to record heights.

The average value of an acre of Iowa farmland increased from $1,857 in 2000 to $5,064 in 2010 - a 273 percent increase - and the value of Iowa cropland has increased another 23.9 percent so far this year, according to the USDA.

“Land is the big barometer of the health of the ag economy,” said Neil Harl, an agricultural economist at Iowa State University in Ames.

Harl noted that during the 1980s farm crisis Iowa farmland plummeted from an average of $2,147 per acre in 1981 to $787 per acre in 1986.

“If the present era is not the best, it's close to the best that Iowa farmers have ever had it,” Harl said.

Commodity prices may have been higher on an inflation-adjusted basis in 1972, but they fell in a few months, he said.

What's remarkable about the current boom, which began in 2006, is its longevity, Harl said.

In the past, farmers have “killed their own prosperity with their supply response” - rapidly expanding acreage and increasing yields, creating surpluses that drove down prices, he said.

With almost all available cropland already in production, demand has increased faster than production during the current boom, said Iowa Secretary of Agriculture Bill Northey.

Noting that most past commodity price spikes have coincided with severe product shortages, Northey, a Republican, said this boom has been different in that farmers actually have something to sell when prices are high.

ISU agriculture economist Mike Duffy said the two main drivers of the recent strong farm economy - demand for corn to produce ethanol and exports to China, India and other developing countries - appear to remain solid.

“If there are clouds on the horizon, I am not sure I can see them,” Northey said.

But the third leg supporting the farm economy stool - government policies and subsidies - may be getting a little wobbly, the farm experts said.

Direct federal payments to farmers based on their acreage and historic yields of subsidized commodities - which for Iowa corn and soybean producers totaled more than $400 million in 2010 - will likely end soon or be sharply curtailed, the experts said.

“Direct payments will be cut in the 2012 farm bill, if not before,” Harl said.

Agreeing, Duffy said, “I don't think there is any way they can argue that kind of safety net is needed under current market conditions and budget constraints facing the federal government.”