Sponsored By
Wisconsin Agriculturist Logo

UW economists predict dairy prices will be stronger in 2020

Hay stocks in 2019 were the lowest since 1950, according to speakers at the Wisconsin Agricultural Outlook Forum.

Fran O'Leary

February 7, 2020

5 Min Read
Professor Mark Stephenson speaks at annual UW-Madison Agricultural Outlook Forum
DAIRY LOOKING UP: Mark Stephenson, director of dairy policy analysis and the Center for Dairy Profitability at UW-Madison, speaks at the Wisconsin Agricultural Outlook Forum, held at Union South on Jan. 28. Michael P. King

Each year, agricultural economists and farm leaders gather in Madison, Wis., to take a look back at the previous year and a look forward to the coming year at the annual Wisconsin Agricultural Outlook Forum. This year’s event was held Jan. 28 at the University of Wisconsin-Madison campus.

Optimistic about dairy

Mark Stephenson, director of dairy policy analysis and the Center for Dairy Profitability at UW-Madison, predicted a better outlook for dairy in 2020, “with a few asterisks.”

Stephenson believes a recession in 2021 is possible in the U.S. With 2020 being an election year, he expects politicians will pull out the stops to make sure the economy continues humming along through the election in November.

Stephenson noted that U.S. cheese stocks have been reduced to a less burdensome level, which is helping boost milk prices. When stocks of product rise too high, it creates downward pressure on prices. During 2019, he said, cheese stocks got to a more comfortable place.

By contrast, butter stocks are growing, he said, and there have even been imports of butter, which helped depress Class IV milk prices paid to U.S. dairy farmers in 2019.

While dairy producers increased cow numbers in 2015, 2016 and 2017, there was no rapid growth in dairy cow numbers in the past two years, Stephenson said. As a result, U.S. growth in milk production has slowed. “That has also allowed the cheese stocks to clear,” he noted.

Stephenson said he will be watching the spring flush in April, May and June. If it is heavy — 620 million pounds per day or more — that’s going to depress milk prices. If it stays at a moderate level — 615 million pounds per day or less — that will bode well for milk prices.

With all the factors considered, he believes dairy farmers are likely to see $20 Class III milk prices again sometime next fall. Stephenson predicted Class III milk prices will increase about $1.20 per cwt in 2020. That’s on top of the $2.36-per-cwt price increase in 2019 over what farmers received in 2018. Stephenson believes the Class III price in 2020 will average $18.20 per cwt.

As he attends farm meetings, Stephenson said issues of feed quality and quantity are on producers’ lists of concerns. “Almost every meeting has a session on alternative feeds,” he noted.

Stephenson said he is concerned that the loss of dairy farms in Wisconsin is having a negative effect on rural communities around the state. In 2019, Wisconsin lost 2.2 dairy farms per day, or 819 farms total, which is about 10% of its dairy farms. The average dairy herd size increased 31% during the last four years. In January 2016, the average Wisconsin dairy herd had 132 cows. By Jan. 1, 2020, the average dairy herd size was 173 cows.

Professor Steven Deller speaks at annual UW-Madison Agricultural Outlook Forum

OFF-FARM EMPLOYMENT: Steven Deller, professor of agricultural and applied economics at UW-Madison, said Wisconsin farmers get 80% of household income from off-farm employment.

Stephenson said the following trends are positive news for dairy farmers in 2020:

  • slowing U.S. and world milk production

  • declining U.S. and world dairy stocks

  • relatively strong domestic economy

  • possible trade improvements

Things that may impact dairy farmers negatively in 2020 include:

  • prolonged trade negotiations

  • slowing GDP growth in countries like China

  • weak economies in Europe, including Germany, France and the United Kingdom

  • possibility of U.S. recession

  • coronavirus

Crop production

Crop production in 2019 was “just horrible,” according to UW-Madison agricultural economist Paul Mitchell, director of the Renk Agribusiness Institute. Nationally, a record 20 million acres of corn were designated as prevented planting in 2019. In Wisconsin, 12.4% of the corn crop, or a record 593,000 acres, was not planted, and 7.3% of soybeans were prevented planting. Some of the worst states hit by excessively wet weather that prevented planting were South Dakota, North Dakota, Minnesota, Indiana and Ohio, he said.

Farm programs — including crop insurance, the Market Facilitation Program and dairy margin coverage — paid more than $500 million in Wisconsin in 2019. Crop insurance indemnities paid in Wisconsin totaled $204 million as of Jan. 27, 2020.

“My guess is it will exceed $284 million, to become the third-highest ever,” Mitchell said. “Farm income in 2019 would have declined without $14.3 billion in MFP payments.”

Crop production issues dominated 2019. There are still unharvested crops, damaged fields and a shortage of quality forage. As of Dec. 8, according to USDA, only 74% of Wisconsin’s corn crop was harvested and only 88% of soybeans.

Lots of soil was damaged from working in wet fields. Hay stocks are very low in Wisconsin. Hay stocks in May were the lowest since 1950. Hay stocks in December were the second lowest since 1950.

Professor Paul Mitchell speaks at annual UW-Madison Agricultural Outlook Forum

TOUGH YEAR FOR CROPS: Paul Mitchell, UW-Madison professor of agricultural and applied economics and director of the Renk Agribusiness Institute, said nationally, a record 20 million acres of corn were prevented planting in 2019. In Wisconsin, 593,000 corn acres were not planted last year.

Mitchell noted there are signs of strength in the farm economy, with stabilized costs, land values holding steady and OK prices. But there are also signs of stress: Dairy farm numbers are continuing to drop, while loan delinquencies and farm bankruptcies are rising in Wisconsin. Wisconsin led the nation in Chapter 12 farm bankruptcies in 2019, as it did in 2018. The second-highest bankruptcy state last year was Georgia, with 37.

“The good news is, farm income was up,” Mitchell said. “The bad news is, without a huge influx of payments from federal farm programs, farm income would have been flat or down in 2019.”

Steven Deller, a professor of agricultural and applied economics at UW-Madison, said dairy, combining both on-farm and dairy processing, contributes $45.6 billion to industrial revenues (7.1% of the state total), 157,100 jobs (4.2%), $9 billion to labor income (4.5%) and $15.1 billion to total income (4.7%). Dairy processing accounts for roughly two-thirds of this contribution.

According to Deller, Wisconsin farmers get 80% of household income from off-farm employment.

About the Author(s)

Fran O'Leary

Wisconsin Agriculturist Editor

Even though Fran was born and raised on a farm in Illinois, she has spent most of her life in Wisconsin. She moved to the state when she was 18 years old and later graduated from the University of Wisconsin-Whitewater with a bachelor's degree in journalism.

Fran has 25 years of experience writing, editing and taking pictures. Before becoming editor of the Wisconsin Agriculturist in 2003, she worked at Johnson Hill Press in Fort Atkinson as a writer and editor of farm business publications and at the Janesville Gazette in Janesville as farm editor and feature writer. Later, she signed on as a public relations associate at Bader Rutter in Brookfield, and served as managing editor and farm editor at The Reporter, a daily newspaper in Fond du Lac.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like