By Senator Howard Marklein
February 1, 2019
Is There a New “Normal” for the Ag Economy?
Recapping the 2019 Ag Economic Outlook Forum
The 2019 Ag Economic Outlook Forum was held on Tuesday, January 29, 2019 at Union South on the UW Madison campus. This 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 that their business is cyclical. For many years they thought in terms of three-year cycles. However, several of the speakers at the forum said that this 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 is down slightly over 2017, but at about the same point as 2016. Cash receipts for soybeans (+4.6%) and corn (+4.1%) are up, but beef (-1.4%) and dairy (-7.1%) are down. At the same time, expenses are up 4.2%. Expenses include interest on loans, fuel, feed and labor.
Paul Mitchell, Professor of Agricultural and Applied Economics and Director of the Renk Agribusiness Institute forecasted that 2019 will be another year of tight margins and income uncertainty. However, he also discussed new options, especially for dairy farmers, in the Federal Farm Bill such as low-interest loans at 1% above the Federal rate and Dairy Margin Coverage to help smaller dairies. Fortunately, our land prices have remained strong. Land prices increased 2.3% in Wisconsin in 2018. This follows a 9.5% land price increase in 2017. This has helped mitigate the equity erosion from losses the past few years.
While there is optimism and opportunity for Wisconsin’s farmers to grow markets, consolidate and diversify, Mitchell said that Wisconsin had the highest 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% 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. Dr. Marin Bozic from the University of Minnesota challenged us to consider why we are lamenting consolidation because it is an idea “as old as civilization itself.”
Bozic pointed toward production efficiency and higher yields. He said that even though the number of farms are 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 that the number of dairy farms drops 40-50% every decade, while the average farm size doubles. He said that this is because farmers are changing their management and financing models. Bozic said that 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 on the rise, farm businesses are turning to external equity financing rather than relying solely on retained earnings for growth and expansions. This has also enabled farm businesses to rely on multiple milksheds 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.
Likewise Dr. Mark Stephenson, Director of Dairy Policy Analysis at UW Madison said “We are losing more farms, but not our capacity to produce milk.” Stephenson said that while the number of cows has decreased slightly, production per cow per day is up overall.
Stephenson said that while milk prices were low in 2018, they could have been worse. He cited consumer confidence in the US economy as a major factor, slowing of milk production worldwide, declining world stocks, a strong domestic economy, trade improvements, the possibility of El Nino weather this year as well as the rise in cheese consumption nationwide. Americans consumed about 37 pounds of cheese per person and he thinks that we have room to grow this sector because Germany and France both experience about 50 pounds per capita.
Fluid milk sales have been on a consistent decline since 2009 when they were 28% of all milk output. In 2018, fluid milk was only 20% of all milk production. Stephenson said that the US needs to grow cheese demand by 1% every year to offset the decline in fluid milk sales. There are opportunities both domestically and internationally.
Unfortunately, Stephenson is not optimistic about milk prices for 2019. He said that we must export 17-18% of milk on a rolling average of 12 months in order for milk prices to “feel good”. His forecast includes 2019 Class III up by $1.10 (per 100 pounds), Class IV up by $1.80 and the All Milk Price up by about $1.15. The contributing factors include prolonged trade negotiations, the possibility of a recession, slow GDP growth in some countries like China and 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 alum from Manitowoc – Pete Kappelman. Pete’s family owns and operates the Meadow Brook Dairy Farms, LLC with 450 registered Holsteins and Brown Swiss, all calf and heifer raising, 1100 cropping acres and forage and grain production. Kappelman talked about the steps his family farm, now operated by two generations, have taken to diversify, 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 & Life Sciences. 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. We have several gifted and engaged 2018-19 Renk Scholars from the 17th Senate District:
- Amber Dammen, Argyle
- Bailey Fritsch, Dodgeville
- Taylor Stanek, Muscoda
- Tucker Wedig, Belmont
Many thanks to the UW College of Agricultural & Life Sciences for organizing the Forum. I also appreciate the many sponsors – Wisconsin Farm Bureau Federation, Wisconsin Farmers Union, Wisconsin Soybean Association, Wisconsin Corn Growers, Wisconsin Cheese Makers, the Midwest Food Products Association and the Wisconsin Potato Growers who partner with several key UW partners to put this on.
As your State Senator and the Chair of the Senate Committee on Agriculture, Revenue & Financial Institutions, I will use everything I learned today to ask better questions and seek solutions to our challenges. I appreciate all of the attendees who braved the cold and those who watched the live stream. Your contributions to these discussions are very important.
For more information and to connect with me, visit my website http://legis.wisconsin.gov/senate/17/marklein and subscribe to my weekly E-Update by sending an email to Sen.Marklein@legis.wisconsin.gov. Do not hesitate to call 800-978-8008 if you have any questions or need assistance with any state-related matters.