OPINION The 2019 Ag Economic Outlook Forum was held Jan. 29 at Union South on the University of Wisconsin-Madison campus. The annual event is always a highlight of my year because it offers an intense discussion of agricultural economics, forecasting and data. This year several of the speakers asked the same question – “Is there a new ‘normal’ for the agricultural economy in Wisconsin?”
Farmers know their business is cyclical. For many years they thought in terms of three-year cycles. But several of the speakers at the forum said the cycle may be expanding and changing. Net farm income has been declining since 2013, with a small uptick in 2017. The analysis of 2018 shows us that overall farm income has decreased slightly as compared to 2017, but at about the same point as 2016. Cash receipts for soybeans have increased 4.6 percent and corn has increased 4.1 percent, but beef has decreased 1.4 percent and dairy has decreased 7.1 percent. At the same time expenses increased 4.2 percent. Expenses include interest on loans, fuel, feed and labor.
Paul Mitchell is a professor of agricultural and applied economics and the director of the Renk Agribusiness Institute. He forecasted that 2019 will be another year of tight margins and income uncertainty. But he also discussed new options, especially for dairy farmers, in the federal farm bill – such as low-interest loans at 1 percent more than the federal rate and Dairy Margin Coverage to help smaller dairies. Fortunately our land prices have remained strong. Land prices increased 2.3 percent in 2018 in Wisconsin. That follows a 9.5 percent land-price increase in 2017. That has helped mitigate the equity erosion from losses the past few years.
There is optimism and opportunity for Wisconsin’s farmers to grow markets, consolidate and diversify. But Mitchell said Wisconsin had the greatest farm bankruptcy rate in the country in 2018, with 47 farms filing. Wisconsin’s overall farm bankruptcies have been increasing since 2015. In the past 15 years Wisconsin has had a 49 percent decrease in the number of dairy farms – from 15,904 to 8,110 farms. However the number of cows in Wisconsin has remained stable.
As a result the theme of the forum was “Dairy Consolidation: New Perspectives for America’s Dairyland.” Several of the speakers discussed the fact that farms are consolidating and partnerships are forming to weather and capitalize on the new normal for agriculture. Marin Bozic from the University of Minnesota challenged us to consider why we are lamenting consolidation because it’s an idea “as old as civilization itself.” He pointed toward production efficiency and greater yields. He said even though the number of farms is declining, production is still strong. If we look at the history of ancient Egypt, we see a similar response to technological improvements and efficiency. When traditional farmers could produce more and better, some of them could turn their attention to other societal contributions.
Bozic said the number of dairy farms decreases 40 percent to 50 percent every decade, while the average farm size doubles. He said that’s because farmers are changing their management and financing models. Farms are now less likely, than ever before to rely on next-generation family ownership for future planning. With multi-site dairy agribusinesses and family partnerships increasing, farm businesses are turning to external equity financing rather than relying solely on retained earnings for growth and expansions. That has also enabled farm businesses to rely on multiple milk sheds and expand beyond the limitations of local processing capacities. As a percentage of dairy farms, Minnesota lost more dairy farms in 2018 than Wisconsin. The reduction in the number of farms is occurring throughout the nation.
Mark Stephenson is the director of dairy-policy analysis at UW-Madison.
“We are losing more farms, but not our capacity to produce milk,” he said.
While the number of cows has decreased slightly, production per cow per day is increasing overall. Stephenson said while milk prices were depressed in 2018, they could have been worse.
He cited several factors affecting the industry; consumer confidence in the U.S. economy is a major factor. S
lowing of milk production worldwide
declining world stocks
a strong domestic economy
the possibility of El Nino weather this year
increase in cheese consumption nationwide
Americans consumed about 37 pounds of cheese per person. He said he thinks we have room to grow that sector because Germany and France both consume about 50 pounds per capita.
Fluid milk sales have been on a consistent decline since 2009 when they were 28 percent of all milk output. Fluid milk was only 20 percent of all milk production in 2018. Stephenson said the United States needs to grow cheese demand by 1 percent every year to offset the decline in fluid milk sales. There are opportunities both domestically and internationally.
But Stephenson said he’s not optimistic about milk prices for 2019. He said we must export 17 percent to 18 percent of milk on a rolling average of 12 months in order for milk prices to “feel good.” His forecast includes 2019 Class III increasing by $1.10 per 100 pounds, Class IV increasing by $1.80 per 100 pounds and the all-milk price increasing by about $1.15 per 100 pounds.
There are several contributing factors.
prolonged trade negotiations
the possibility of a recession
slow gross domestic-product growth in some countries like China
the unpredictability of production in New Zealand, which has significant fluctuations because of weather
Among the other speakers of the day was a UW-Madison College of Agriculture and Life Sciences alumnus from Manitowoc – Pete Kappelman. His family owns and operates the Meadow Brook Dairy Farms LLC with 450 registered Holsteins and Brown Swiss, all calf and heifer raising, 1,100 cropping acres, and forage and grain production. Kappelman talked about the steps his family farm, now operated by two generations, have taken to diversify and weather financial uncertainty and grow. His family’s proactive approach and optimism are an example that many farmers are emulating as we look toward the future.
One of the key ingredients for Kappelman’s success and strategy is sending his children to the UW-College of Agricultural and Life Sciences, he said. The Renk Agribusiness Institute is a part of this college and was established in 1996 to manage and coordinate agribusiness teaching, research and extension-outreach among the College of Agricultural Life Sciences, the UW-School of Business and UW-Extension. Each year the Renk Agribusiness Institute selects outstanding undergraduates for scholarships.
Many thanks to the UW-College of Agricultural and Life Sciences for organizing the Forum. As a Wisconsin Senator and chair of the Senate Committee on Agriculture, Revenue & Financial Institutions, I will use everything I learned to ask better questions and seek solutions to our challenges. I appreciate all the attendees who braved the cold and those who watched the live stream. Their contributions to the discussions are important.