State Personal Income and Ethanol Policy

The BEA issued their quarterly update of state personal income. Normally, my comments on these reports are limited to how Pennsylvania is lagging behind the national average (true again this time).

But another major finding stand out – dramatic changes in personal income from farming. The news release points out:

The unusually wide range of state growth rates is largely a consequence of rising grain prices. Corn prices jumped 22 percent in the first quarter, while wheat prices rose 18 percent and soybean prices 17 percent. This added 6.4 percentage points to personal income growth in North Dakota where the farm sector is predominantly crop production. At the same time, the higher grain prices, which raised expenses for livestock growers, reduced personal income by 1.0 percentage point in Arkansas where the farm sector is predominantly poultry.

The trend is even more obvious when looking at the state data by industry. Farm income declined 7.55% nationally and 15.43% in Pennsylvania. The change ranged from 240% growth in farm income in North Dakota to a 334% decline in Wyoming (from $58 million in income to $136 million in losses).

I’ve pointed out before how ethanol mandates and subsidies drive up crop prices – encouraging farmland to be used for fuel, rather than food (the latest BOX program features Andrew Moylan talking about this as well). Now we see what the consequences are for the overall economy and especially the farm community.