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Serving: WI
2015 will be challenging for Wisconsin dairy and grain farmers

2015 will be challenging for Wisconsin dairy and grain farmers

Milk prices are expected to drop $7.20 per hundredweight from last year

Wisconsin farmers enjoyed their best economic year ever in 2014. Net farm income was at a record level — $4 billion plus compared to $3.75 billion in total net farm income in 2013. The previous record year was in 2011 when net farm income in the Dairy State hit $3.8 billion, according to Bruce Jones, University of Wisconsin-Madison agricultural economics professor, who spoke during the annual Wisconsin Agricultural Economics Outlook Forum held Jan. 21 at UW-Madison.

Wisconsin farmers generally fared better than other U.S. farmers in 2014.

"We saw very good earnings in 2014," Jones said. "Where did it come from?  The big gains came primarily from dairy. The value of the state's milk production was up by about $1.2 billion in 2014, largely thanks to strong milk prices. These higher milk returns offset declines in crop returns as well as increases in the costs of inputs and production expenses."

Mark Stephenson, director for UW-Madison Center for Dairy Profitability, echoed Jones' comments.

"2014 was a great year for dairy producers with the highest peak and average milk prices of all time, lower feed costs than in recent years and the highest income over feed costs," Stephenson said. "Wisconsin's All Milk price was above $25 for five months of the year. Farms have had the opportunity to restore balance sheets, make capital investments and pre-purchase inputs for the year ahead. Consumers also faced the highest retail prices ever, but didn't seem to back away from purchases."

Wisconsin farmers generally fared better than other U.S. farmers in 2014.

"In the U.S., net farm income was down about 25%," Jones said.

Precipitous decreases in crop prices, particularly in corn and soybean prices, greatly reduced the value of agricultural production on many U.S. farms.

The wealth of Wisconsin farmers also continued to rise, Jones noted.

"The equity of Wisconsin farmers rose by about $1.2 billion from Dec. 31, 2012 to year-end 2013. This wealth gain is the result of farm asset values rising by about $1.5 billion while farm debts increased roughly $300 million."

 The value of Wisconsin's farm assets did not grow at the same rate as U.S. farm assets between 2010 and 2013. Wisconsin farm assets rose about 11%, while U.S. farm assets grew a bit more than 25%.

"This lower growth rate for Wisconsin farm assets suggests that Wisconsin farmers have not been benefitting from real estate appreciation to the extent that farmers in the rest of the U.S. have," Jones said.

Farm revenues and profits are projected to be down substantially in 2015 as dairy prices plummet, Stephenson said.

"I expect a significant decline in milk prices," Stephenson noted. "The Class III price will drop by at least $7 per hundredweight and the Wisconsin All-Milk price to drop by about $7.20."

While the director of the University of Wisconsin-Madison Center for Dairy Profitability believes the 2015 All-Milk price in Wisconsin will decline by $7.20 from 2014 to 2015, he is not predicting a repeat of the devastating year dairy farmers had in 2009 when the Class III milk price was $9 per hundredweight the first nine months of 2009 and the Wisconsin All-Milk price averaged $11.

"Although $7.20 per hundredweight is a large drop in income, feed prices are expected to remain near the more moderate levels of last year," Stephenson said. "This would place the 2015 income-over-feed costs slightly below a long-run average but nowhere near the levels of 2009."

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He believes the Class III price will average between $12 and $15 per hundredweight, "which is about half of what they peaked at in 2014, so we will see a drop."

Stephenson said farms retained cows and expanded the herd to take advantage of strong profits in 2014. "Cull cow prices have averaged well above a dollar per pound, more than double the value in 2009 and 2010, and are expected to remain high for most of 2015. Cull cow income will be a good alternative to milking marginal animals," he noted.

Stevenson says Wisconsin dairy farmers have already begun culling cows heavily and he believes dairy farmers across the country will do so throughout 2015.

The passage of the Agricultural Act of 2014 brought the Margin Protection Program for dairy as a new risk management tool.

"Wisconsin dairy producers approached this tentatively with about 54% of farms enrolling in the program for 2015 and with about 55% of those farms buying protection above the free catastrophic level of coverage," Stephenson said. "Dairy farms that purchased higher levels of coverage in the new MPP will see some indemnity payments starting in the second quarter of the year.

He expects the MPP margin to be somewhat worse than futures are currently forecasting, he added. "It's not going to be a horrible year by historic standards, but it will be much worse than 2014."

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Brenda Boetel, associate professor of ag economics at UW-River Falls, predicts corn prices will decline 6% from last year and will remain steady throughout spring.

"The planting intentions report will be important in determining prices after April, but with return to trend yield, prices will remain low, barring weather impacts through the marketing year 2015/2016," she said.

Boetel said the average cost of production for corn in 2014 will be $4.43 per bushel. While the USDA is forecasting a harvest price of $3.65 per bushel, she believes it will be closer to $3.60. As a result, she is predicting negative margins for the 2015/2016 crop year.

"The corn price in the 2015/2016 marketing year depends on acreage," she said. "Likely we will see less corn acres in 2015. We need to decrease corn acres to 88 million to have supply meet demand."

Boetel said soybeans are not fairing much better than corn. The soybean price is down 21% from last year.

She figures the average cost of growing a bushel of soybeans this year is $10.94. While the USDA is predicting a harvest price of $10.20 per bushel, Boetel believes the harvest price could be less than $8.50 per bushel for soybeans.

Boetel said commercial beef slaughter dropped 7% in 2014 from 2013. She predicts it will decline another 2% in 2015. Commercial beef production was down almost 6% in 2014 and will be down 0.8% in 2015.

"Protein demand remained strong for all proteins in 2014, but the additional poultry and pork supplies in 2015 may lead to weaker beef demand due to the price differences between the different proteins," Boetel noted. "Finished cattle prices were up almost 23% and feeder prices were up 40% in 2014 and finished prices will be up another 5% in 2015 while feeder prices will rise another 10%."

Boetel said pork production declined 1.3% in 2015 while beef production dropped 5.8%. Pork production in 2015 is expected to increase 4% over 2014, while beef production is expected to decline .8%.

Hog cost of production dropped to less than $80 per hundredweight in 2014 from $93.95 per hundredweight in 2013 and may drop to less than $70 in 2015. Increased breeding herd numbers, pigs per litter, and higher market weights indicate that pork production will increase almost 4% in 2015 and another 3.5% in 2016, she said.

According to Jones, about 75% of Wisconsin farms fall into the group of farms with less than $100,000 in annual sales. These "small farms" control about 45% of Wisconsin's farm equity but produce less than 5% of the state's net farm income.

"The bulk of Wisconsin's net farm income is generated by farms with sales of $1,000,000 or more per year," Jones explained. "These 'large farms,' which are less than 5% of all Wisconsin farms, produce more than half of the state's net farm income while controlling a bit less than 20% of farm equity."

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