By DAVID MERCER
CHAMPAIGN, Ill. (AP) -- Since 2007, much of the American economy has stumbled through a difficult period, but agriculture-related firms have enjoyed four profitable years thanks to heavy demand for corn and other crops.
A new index of 21 agriculture-related companies, called Agindex, shows their market value increased 8.6 percent a year from the beginning of 2007 through the end of March 2011. During that same period the value of companies in the S&P 500 dropped on average 2.7 percent per year.
The Agindex includes household names such as equipment-maker Deere & Company and seed-and-chemical firm Monsanto along with lesser-known companies such as fertilizer producer Agrium.
Gary Schnitkey, a University of Illinois agricultural economist, created the index with graduate student Clay Kramer to measure the strength of the agricultural sector. What they found was evidence of the strength of the rural economy the past few years, when crop prices sheltered farm country from much of the worst of the recession.
"Farmers are buying equipment and everything so it does filter out into the general rural sector," Schnitkey said. "The rural economy did fare pretty well."
Even with uncertainties about whether the government will reduce or eliminate programs that subsidize ethanol producers and growers of corn, soybeans and other commodities, Schnitkey said it's doubtful his index or the farm economy could decline any time soon.
"You're going to see pretty high (farmer) incomes for this year and probably next year," he said. "It's hard to see a situation where that moderates a lot."
Prices for corn, soybeans and other crops have soared for several reasons, including a surge in overseas purchases from developing economies in China and India as well as continued demand from U.S. livestock and ethanol producers.
The demand has caused stockpiles to decline and in part been to blame for increased food prices.
As farmers have earned more in recent years, they have bought new tractors, combines and other equipment from companies like John Deere and Kubota Tractor Corp.
The equipment makers in the index saw their market value increase a total of 51 percent.
Higher prices, coupled with plentiful crops in recent years, have enabled farmers like Leon Corzine of Assumption, Ill., to buy new equipment. Corzine bought two new tractors last year for use on his 3,000 acres of corn and soybeans.
"You're talking about getting upwards of 250,000 or 300,000 dollars apiece," he said.
But the sector that's had the best four-year run, Schnitkey found, is fertilizer makers such as Agrium, based in Calgary, Canada, and Potash Corp. of Saskatchewan, based in Saskatoon, Canada. Those companies' market values more than doubled.
Most Americans probably have never heard of the fertilizer makers, but the demand for more corn and soybeans has allowed the companies to put a premium on their products.
Not every company on the index did so well. The index's processors, which had to pay high prices for corn, soybeans and other crops, actually lost 4 percent of their value. Those companies include Archer Daniels Midland Company, Bunge Limited and Corn Products International.
Schnitkey noted that most of those companies had very strong first quarters this year.
Despite concerns about reductions in government subsidies for ethanol and some crops, Morningstar analyst Jeffrey Stafford expects the current trend to continue. Farmers can't keep up with the demand for corn, for instance, meaning that stockpiles will remain low.
"It could take multiple growing seasons to return those stocks-to-use levels to kind of a more sustainable average," he said. "You could see elevated crop prices remain for quite some time."
University of Illinois farmdoc blog, http://www.farmdoc.illinois.edu
Copyright 2011 The Associated Press.