Capitol Update

by Senator Howard Marklein

January 27, 2023

The Outlook for Ag is Impacted by Costs and Economic Uncertainty

The Ag Economic Outlook Forum was held at the University of Wisconsin – Madison, Union South on Tuesday, January 24, 2023. I always look forward to this gathering of ag economists and experts who share their observations and predictions related to our agricultural industry.
According to the experts, 2022 was an excellent year for nearly every segment of agriculture. Overall, the industry was highly profitable and farm balance sheets are in a great position going into 2023.
The issue for 2023 is that costs are increasing by 10-40% in some segments and economic uncertainty may impact consumer behaviors and preferences. I recently read that cheese is a great economic indicator. When the economy is strong and people have disposable income, they eat out at higher end restaurants that typically serve specialty cheeses. But when the economy is tight, shredded mozzarella does very well because people err toward more affordable options like pizza.
Don’t get me wrong, I love a great, gooey slice of pizza. I’m not knocking this choice for dinner in any way. I simply observe that consumer preferences and behaviors around cheese may be an indicator of where things are headed for the economy in general.
According to Paul Mitchell, Professor, Agricultural and Applied Economics; Extension-Funded Faculty Specialist, Cropping Systems; and Director, Renk Agribusiness Institute, after two years of strong income and increasing land values, the average farmer started 2023 in a good spot. We are no longer the national leader in farm bankruptcies.  As farmers look to the future, costs for nearly everything – fuel, fertilizer, pesticide, feed, livestock, labor, etc. are rising. This will shrink margins for ag across the board.
Mark Stephenson, Director of Dairy Policy Analysis, UW-Madison-Retired, focused on the 2023 Dairy Price Outlook. He said that domestic demand has remained strong, despite inflation, but he is concerned about the probability of a recession. All of the economists are worried about what consumers will do – and what their responses will be to a recession.  
Stephenson said that milk production has been cautious but there is new plant capacity being planned. 
High milk prices have yielded decent margins for most producers in 2022, but he is skeptical about 2023.  He told us to expect milk prices to be $4.50 to $5.50 lower this year.
When it comes to livestock, Brenda Boetel, Extension Commodity Marketing Specialist, said that while domestic demand for beef, pork and poultry is trending weaker because of economic uncertainty, retail prices for the same are increasing. Beef prices are up 7%, pork 10.1% and poultry 16.6%.  Prices in 2023 are likely to remain stable, but may be slightly higher as inflation increases costs.
Boetel also addressed international demand for protein exports. She said that the largest destinations for our pork are Mexico, Japan, China, Canada, South Korea and Colombia. These destinations accounted for 94% in October, up 2% over last year.
Finally, John Heinberg, Market Advisor with Total Farm Marketing discussed the 2023 grain market outlook.  Heinberg suggested that we should watch supply and demand, the macro economic environment, weather and the potential for South American crops as we analyze opportunities in 2023.
He said that volatility will continue and that farmers must continue to be flexible.  He said that capitalizing on change with a disciplined approach to defensive strategies will help farmers cope with the unknowns in 2023.
Overall, the outlook for agriculture in Wisconsin is positive despite the potential for a recession in our near future. People need to eat. The question will be: “what will they choose”. Will they choose the 10-year aged cheddar?  Or will it be the shredded mozzarella? 
As always, please do not hesitate to connect with me to provide input, ideas or to seek assistance.  Send an email to sen.marklein@legis.wisconsin.gov or call 608-266-0703.