Weak export values hurting state's farmers
A global market awash in agricultural commodities has weighed on Wisconsin farmers, hampering exports of their products that are anchors of the the state's rural economy.
The value of Wisconsin farm products shipped to Canada, Mexico, China, Korea and Japan — the state's largest foreign markets for agricultural products — was down through June, according to the most recent figures from the Wisconsin Department of Agriculture, Trade and Consumer Protection.
The value of the state's dairy, egg and honey product exports fell 33% in 2015 and was down nearly 15% in the first six months of this year compared with the year-ago period.
Overall, Wisconsin exported $1.67 billion in agricultural products to 134 countries in the first half of the year, down 5.7% in value from the first half of 2015 and the sequel to a 12.3% annual decline in 2015.
Of the top-five agricultural export categories, only preserved, canned foods had an increase in value the first half of the year — up more than 17% from the year-ago period.
Lower commodity prices accounted for some of the decline, but a stronger U.S. dollar also played a role as it made U.S. farm products more expensive, and less appealing, abroad.
"The currency exchanges are going against us and will continue to go against us," said Michael Slattery, a Manitowoc County farmer who spent nearly 20 years working in domestic and international finance, including 12 years for Japan's largest bank.
Furthermore, countries with weak currencies have ramped up agricultural production — sending corn, soybeans and other commodities into global markets where they are cheaper to buy than U.S. products.
Combined, Brazil and Argentina now export more soybeans than the United States and are expected to rapidly expand their market share in coming years.
"Brazil and Argentina have become our most formidable competitors for grain production," Slattery said.
Slattery has a doctorate in international relations. In addition to his overseas work experience, and running his own farm, he's analyzed foreign markets for the Wisconsin Farmers Union, an organization that represents the interests of farmers and rural residents.
This year, the U.S. is swamped with grain after several years of bumper crops. Another strong harvest is coming this fall, adding to the surplus that's kept prices low.
Slattery said he expects a net loss of about $70 per acre on his corn crop, despite an excellent growing season. Given his losses from grain farming last year, he pursued other farming options, but the choices were slim.
Once you find a niche market, Slattery said, then other farmers jump in and prices for that commodity drop.
Wisconsin ranks 13th among states in agricultural exports. It leads the nation in exports of pickles, sausages, raw fur skins, ginseng roots and prepared/preserved cranberries. It's second, behind California, in exports of cheese and whey.
Most Wisconsin dairy products are consumed in the U.S., but about 50% of the whey, a byproduct of cheese production, is exported.
Since 2014, whey prices have fallen from about 70 cents a pound to 30 cents as other countries have stepped up exports of the commodity.
The U.S. sells more whey than any other country, and about a third of the world's skimmed-milk powder, said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison.
Some years, export markets have been used to compensate for overproduction of farm commodities, whittling down back-to-back bumper crops and a glut of milk and livestock.
"But it's always been my opinion that the more we rely on export markets for taking off our excess supply, the more volatile it is because we are dealing in a marketplace we can't control a lot," said Brian Gould, professor of agriculture and applied economics at UW-Madison.
Trade agreements are sometimes seen as a way to help expand foreign markets for U.S. farmers by reducing export barriers to other countries.
The United States has 14 free-trade agreements with 20 countries, accounting for 43% of U.S. agricultural exports, according to the U.S. Grains Council.
Still, the history of trade agreements has been one of broken promises, said Darin Von Ruden, president of the Wisconsin Farmers Union.
The proposed Trans-Pacific Partnership agreement poses a serious threat to U.S. dairy farmers, according to Von Ruden, because it could send billions of pounds of foreign dairy products into the U.S. marketplace.
Wisconsin is losing one dairy farm a day, on average, as a result of current low milk prices, Von Ruden said.
"With falling exports and rising imports, there will be pressure for prices to remain below farmers' production costs. We can't risk another economic downturn like those we've experienced under previous trade deals," he said.
When dairy exports were strong a few years ago, Wisconsin farmers had record-high milk prices. Since then, demand hasn't kept pace with the supply.
"I think, long-term, you can be bullish on exports. But right now we have a surplus of milk around the world. ... It has been a tough year for dairy farmers," said John Umhoefer, executive director of the Wisconsin Cheesemakers Association.
Total U.S. agricultural exports were valued at $73.4 billion in the first six months of the year, down nearly 9% from the same period a year earlier, according to the U.S. Department of Agriculture.
It will take stronger domestic demand for U.S. farm products, in addition to improved foreign markets, for many farmers to realize higher prices for their goods.
All Midwestern states, except North Dakota, have felt the downturn in agricultural exports.
The diversity of Wisconsin's products has helped offset some of the decline.
State officials work directly with companies to help them develop export strategies, sometimes arranging meetings with foreign buyers at events such as the World Dairy Expo in Madison.
The meetings, sometimes called "speed dating," are an inexpensive, low-risk way for companies to meet with buyers, said Jen Pino-Gallagher, market development director for the Wisconsin Department of Agriculture, Trade and Consumer Protection.
"The biggest advantage is that companies know these are reputable, trusted buyers. It's not like somebody contacting them out of the blue," she said.
If there's a bright side to agricultural exports this year, the Port of Milwaukee has done well in filling cargo ships bound for overseas ports. Often, those ships come to Milwaukee loaded with metal and other industrial goods, and they leave with a load of corn or soybeans.
There are a lot of those ships coming from overseas this year.
As a result, "we have been able to ship quite a few vessels of grain," said Paul Kerber, marketing manager for the Nidera grain terminal at the Port of Milwaukee.