Indiana agriculture.

• Author: Alexander, Corinne

Indiana agriculture is undergoing a massive transition and entering the energy business. Going forward, this leap into farming for fuel means that the price of gasoline will have a large impact on Indiana farm incomes and farmland values.

Ethanol produced from corn is leading the way. Right now, there is an existing ethanol plant in South Bend, with an additional four plants at Rensselaer, Marion, Clymers, and Linden that will be on-line in 2007. These four new ethanol plants will utilize about 160 million bushels of corn, equivalent to 12 percent of Indiana's 2006 corn production. The State of Indiana is working with an additional eight plants located in Blackford, Jay, Putnam, Posey, Tipton, Randolph, and Rush counties. The Purdue list indicates at least another ten groups considering plant sites. If all of the proposed plants are built, the demand for corn for these plants will be the equivalent of 81 percent of Indiana's 2006 corn production. Even if only a fraction of these plants are build, this new usage for corn will dramatically alter Indiana's agriculture (see Figure 1).

[FIGURE 1 OMITTED]

Biodiesel produced from soybean oil is not developing as quickly as ethanol. The largest facility will be a new soybean crushing facility being built at Claypool in Kosciusko County by Louis Dreyfus, Inc. That plant will process 50 million bushels of soybeans per year, equivalent to 17 percent of Indiana's 2006 soybean production.

Why has interest in biofuels approached "gold rush" status in the last year? With crude oil prices above $50 a barrel, biofuels, and ethanol in particular, have become extremely profitable. As recently as 2004, crude oil was well below $40 a barrel a point where biofuels are not profitable. In 2006, with crude oil in the $60 to $70 a barrel range, the outlook for the ethanol market is rosy. However, profitability in the ethanol market is vulnerable to the price of crude oil.

Farm Income and Farmland Values

How will the development of ethanol and biodiesel plants in Indiana affect farm incomes and farmland values? The answer for farm incomes depends on the...