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2016 will be challenging year for Wisconsin farmers

2016 will be challenging year for Wisconsin farmers
The Class III milk price will be down 60 cents from 2015

U.S. milk production went up just a little over 1% in 2015, a modest increase over 2014 levels, Mark Stephenson said during the annual Wisconsin Agricultural Economics Outlook Forum Jan. 21 in Madison.

"However, the milk production story was very different across the country," he explained. "Drought-induced high feed costs and relatively low milk prices resulted in California's milk production being down by more than 3%. In contrast, milk production in the Northeast and Michigan exceeded plant capacity causing a fair amount of milk to be dumped. Wisconsin's milk production was up nearly 4%."

Drought has really affected feed prices in California, Stephenson explained.

The world's two largest importers of dairy products are China and Russia.

"Hay in Wisconsin last year average $150 per ton and corn was $3.47 per bushel," he noted. "In California, hay prices averaged $260 per ton and corn was $5.01 per bushel."

Milk production per cow increased each of the past two years in Wisconsin and was higher than California's.

"That hasn't happened in 60 years," Stephenson said.

Domestic dairy sales were strong in 2015. While fluid milk sales continued to decline, demand for whole milk, creams and butter were noticeably higher.

"The buoyancy of domestic dairy sales are in stark contrast to our export performance," Stephenson said. "Export sales had represented 16% of milk production in early 2015, but then declined to almost 14% by the end of the year. That extra 2% of milk production not leaving our shores caused cheese inventories to build by the end of the year."

The world's two largest importers of dairy products are China and Russia. According to Stephenson, China's growth has slowed considerably and is reflected in the smaller amount of dairy purchases. Russia is suffering from the double whammy of sanctions and low oil prices. Their imports of dairy products are well below peak levels.

"As we look ahead to dairy trade in 2016, much of the year will be spent trying to work down international stocks of dairy products," Stephenson predicted. "This will keep downward pressure on U.S. milk prices and will postpone any milk price recovery until late in the year."

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He said 2016 average milk prices will be slightly below 2015 levels. Stephenson expects the Class III milk price for 2016 to average 60 cents per hundredweight less than in 2015.

Not great for grains

Brenda Boetel, professor of ag economics at UW-River Falls, said corn prices are down about 10% from a year ago and will remain steady through spring. She predicts corn prices will be 5 cents to 10 cents lower per bushel than in 2015.

"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 2016 will be $4.10 per bushel. She is forecasting a harvest price of $2.91 per bushel. As a result, she is predicting negative margins for the 2016/2017 crop year for many farmers.

"We had really good yields in 2015," Boetel explains. "Corn used for ethanol decreased by 5 million bushels in 2015 and U.S. exports have been down due to increased exports of corn from Canada and Brazil."

Barring a widespread weather event in 2016, Boetel said we will likely see low corn prices for the next two years.

Boetel said soybeans are not faring well either. The soybean price is down 15% from last year and the price for soybean meal has plummeted 27%.

"South American production and increased acreage in the U.S. combined with a large carryover from 2015 will continue to push soybean prices lower in 2016," she said.

Boetel figures the average cost of growing a bushel of soybeans this year is $9.40. She is predicting the harvest price for soybeans will be only $7.46 per bushel.

Beef prices drop

Boetel said herd expansion has begun and will likely continue in 2016.

"Commercial beef production was down over 2% in 2015, but will be up almost 3.5% in 2016," she said.

Although beef prices were at record highs last summer, that all changed by October.

"The average 2015 finished cattle price was down slightly over 4% from 2014, while fourth quarter cattle prices were down almost 24%. Expect the average 2016 finished cattle price to be down about 7%."

Beef exports declined 14% in 2015, Boetel said. She expects exports to decline 1.6% in 2016.

Boetel said pork production was up slightly over 7% in 2015 and averaged close to $70 per hundredweight in 2015.

"2016 should see similar prices to 2015," she said.

UW-Madison agricultural economics professor Bruce Jones said one bit of good news for Wisconsin farmers is farm input costs will be lower in 2016.

"The drop in farm input costs coincides with worldwide declines in crude oil prices," Jones explained.

He says the prices of diesel fuel, gasoline and LP gas declined substantially in 2015. On Jan. 21, crude oil prices had dropped to $26 per barrel. He expects energy prices to stay near this level through 2016. Jones said fertilizer prices will be lower in 2016 as well.

TAGS: Soybeans
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