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Serving: WI

UW ag economists: 2020 was year of extremes

Photos by Michael P. King Ag economist Paul Mitchell
FARM STRESS: Ag economist Paul Mitchell, director of the Renk Agribusiness Institute at the University of Wisconsin-Madison, says 2020 was a stressful year for agriculture primarily due to COVID-19 following several years of tight margins and low farm income.
Following a volatile year, challenges continue for Wisconsin farmers in 2021.

Each January, agricultural economists from the University of Wisconsin-Madison and UW-River Falls take a look back at the previous year and look forward to the new year during the Wisconsin Agricultural Outlook Forum. This year’s forum on Jan. 26 was held virtually due to the COVID-19 pandemic.

Stressful year

UW-Madison ag economist Paul Mitchell, director of the Renk Agribusiness Institute, said 2020 was a stressful year for agriculture, primarily due to COVID-19 following several years of tight margins and low farm income.

“COVID has changed all of our lifestyles,” Mitchell noted. “There is a lot of emotional stress in rural areas. COVID is really hitting in rural areas of the state. Wisconsin has a lot of financial stress.” He said the Dairy State continues to lead the nation in the number of Chapter 12 farm bankruptcies.

Last year, 76 Wisconsin farms filed for Chapter 12 bankruptcy protection, Mitchell said. “Kansas is the state with the next most farm bankruptcies, and that’s 33 — less than half the number in Wisconsin, and that doesn’t include farmers who filed for other bankruptcies like Chapter 7.”

Mitchell said not all the news on the farm in 2020 was bad. “Our dairy farm attrition rate was above 10% at the start of 2020,” he said. “We were losing more than 1 in 10 dairy farms. But by the start of 2021, the attrition rate for dairy farms fell below 5%, which is near the normal rate of 4% per year.”

Mitchell said Wisconsin farm income in 2020 jumped between 21% and 41% after several lackluster years. U.S. farmers received $46.5 billion in government support payments in 2020, pushing net farm income up from $73.1 billion to $119.6 billion with government payments, compared to $60 billion in 2019.

“Wisconsin farmers received $1.045 billion in federal support,” Mitchell noted. “The payments were made primarily for our four main commodities: dairy, corn, beef and soybeans.”

Mitchell reported that farmland values in Wisconsin held steady in 2020, and values for good farmland rose 3% throughout the state.

He also pointed out that Wisconsin had an excellent crop year in 2020. “Our yields were well above our average and way above 2019,” he said. “Our corn averaged 174 bushels per acre, and soybeans averaged 51 bushels per acre last year. We had a higher percentage of corn and soybeans rated good to excellent than any other state in the Midwest.” Minnesota was second.

John Heinberg, market adviser for Total Farm Marketing, spoke during a panel discussion on grains. “We’re seeing a lot of price volatility, and it’s going to stay with us through 2021,” Heinberg said.

He said March corn futures are $5 per bushel, and March soybeans are $13 per bushel.

“China has been buying corn and soybeans aggressively,” he said. “We’ve even seen them lock in part of next fall’s crop, too.”

Dairy price volatility

Mark Stephenson, director of dairy policy analysis at UW-Madison, said 2020 was a year of extremes for dairy and like none anyone has seen before. Dairy prices during the pandemic were extremely volatile.

“In April, cheddar cheese prices dropped to $1 a pound,” Stephenson said. “This caused a surge in export sales, which in turn pushed cheddar cheese prices to $3 a pound in July, which is the highest price ever seen for cheese.”

Overall, he noted, pandemic prices have not been as bad as expected. “The dairy markets have done a remarkably good job of moving milk to meet consumer demand,” he said.

Coronavirus Food Assistance Program payments added $2.45 per cwt to what farmers were paid for their milk in 2020, which gave them the best income since 2014, Stephenson said.

Mark Stephenson, director of dairy policy analysis at UW-Madison

VOLATILE DAIRY PRICES: Mark Stephenson, director of dairy policy analysis at UW-Madison, says 2020 was a year of extremes for dairy and like none anyone has seen before.

“Historically, about half of all cheese is consumed away from home,” he explained. “The vast majority of American processed cheese is served at restaurants. The majority of pizza sales are takeout, and those sales have surged during the pandemic. Farmers to Families Food Boxes had a big impact on dairy consumption and milk prices.”

Stephenson said total cheese consumption is up at the retail level and down for food service and institutions like schools. Total cheese consumption was down 0.4% in 2020 but was expected to be down much more.

“American consumers are eating 38 pounds of cheese per person per year,” Stephenson noted. “Back in the 1970s, that number was around 14 pounds per person.”

Fluid milk sales in 2020 increased, reversing a long-standing trend. “Reports of empty store shelves were short-lived,” he said. “Cereal sales were up substantially last year, too.”

Butter sales declined 0.2%. “More than half of butter is used by food service and institutions like schools,” Stephenson said. “Butter sales were way up at retail through July last year but slowed after that.”

Stephenson said there are concerns for dairy farmers going into 2021.

“COVID caused the economy to go into a tailspin and induced a worldwide recession, and we’re still in it,” he explained. “Unemployment during the 2008-09 recession peaked at 10%. Unemployment at the start of COVID peaked at 14.7%. It has dropped to about 6.7% now, but that is higher than it should be. We need to get back to about 4% unemployment.” But he said that’s going to take some time.

“Restaurants have been hit hard,” he said. “Restaurants were hit harder during COVID than during the Great Recession.”

Consumer confidence has dropped during the pandemic, but nowhere near as low as it did during the Great Recession.

“The pandemic recession is about job loss, especially in the hospitality and service sector,” Stephenson continued. “This will have an impact on dairy demand going forward if people remain out of work and don’t have extra unemployment benefits. Why? Because we have a consumption-based economy. Seventy-two percent of our GDP comes from consumer spending.

“If we can’t sell dairy products locally, then we have to export our surplus, which means our prices have to be aligned with world prices.”

He noted that this year, butter prices are competitive with world prices. “So, I think we will be moving butter. Our cheese prices are close to being competitive. And we are selling a lot of milk powder.”

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