Ag economists: no huge improvement in farm income predicted for 2019

Jan Shepel
From left, Brenda Boetel, a professor of agricultural economics at UW-River Falls, Paul Mitchell, professor of agricultural and applied economics at UWÐMadison, and  Mark Stephenson, professor of agricultural and applied economics at UWÐMadison, participate in a panel during the 2019 Wisconsin Agricultural Outlook Forum at Union South at UW-Madison in Madison, Wis., Tuesday, Jan. 29, 2019.

MADISON – Even for farmers who are keeping their heads above water, economists at last week’s Wisconsin Agricultural Outlook forum are not predicting a huge improvement in income for the coming year.

Figures from the U.S. Department of Agriculture show that 2018’s farm income was about 50 percent less than what it was in 2013—only five years ago.

Nationally, median farm income is estimated at a negative $1,548—which means that a majority of farms in all size categories lost money last year.

Paul Mitchell, an ag economist at the UW-Madison and director of the Renk Agribusiness Institute, which sponsors the annual outlook forum, commented that in 2017, farm income had bumped up, but by 2018, overall it had dropped 8 to 10 percent. Income for beef producers was down 1.4 percent while for dairy producers it dropped 7.1 percent.

Government payments to farmers were up 18 percent, partly due to the $4.7 billion in market facilitation payments and the $1.6 billion in disaster payments for farmers who were caught in the path of hurricanes, floods and other disasters.

Mitchell noted that expenses are up 4.2 percent for things like interest, fuel, feed and labor.

In Wisconsin, farmers grew great crops of corn and soybeans and their land values remained high. Wisconsin farmland values led the Midwest, rising 2.3 percent in 2018, continuing a trend for higher land values. The average per-acre land rent in the state is $140.

Unfortunately, Wisconsin farmers also led the nation in bankruptcy filings. There were 47 farms that filed under Chapter 12 bankruptcy law last year. “The current farm bankruptcy rate is unusually high,” he said. The number works out to six or seven bankruptcies per 10,000 farms.

Those farms are all over the state, and he and his colleagues couldn’t come up with a reason why Wisconsin’s levels were so much higher than other states—even those that border Wisconsin. “We talked to law firms that handled many of those filings and they came from all categories of farms—cranberry, small, large, organic—all kinds,” Mitchell said.

In addition, dairy farmers are calling it quits in unusually high numbers due to the economic hardships in the industry today, he said. While their numbers continually diminish, the rate of loss has accelerated in the last year.

Quoting Charles Dickens’ “A Tale of Two Cities,” Mitchell tried to make the point that some farms are doing better than others. “It was the best of times; it was the worst of time,” he said.

During a dialogue with the audience, Wisconsin Farmers Union’s Kara O’Connor called him on the folly of using that kind of quotation. “I find that your comment was deeply out of touch and urge you never to say that to a farm audience again,” she said, addressing Mitchell.

Kara O'Connor

“To say that it’s the best of times for anyone when farmers are heavily dependent on government programs to stay afloat and there are record high suicides and bankruptcies, I think that’s a morally void outlook,” O’Connor added.

Mitchell apologized for using the phrase, noting that 20 percent of state farms are cash-flowing while the rest are struggling to get by.

Dairy analysis

Mark Stephenson, director of dairy policy analysis at the UW-Madison said that 2018 was “another challenging year” for dairy farmers and that there was a significant amount of stress in the state’s dairy industry.

When dairy exports began to fall off, as a result of the ongoing trade and tariff wars, dairy processors made even larger amounts of stable products from milk, namely cheese. Normally stocks of these products go down from Thanksgiving to early February when the Super Bowl gets played because people are buying, consuming and serving to guests the many foods made from dairy. However, in the past few months those stocks of dairy products are rising.

While that product sitting in U.S. warehouses can serve to depress prices, he also considers stocks of similar dairy products around the world.

Attendees listen to a session at the 2019 Wisconsin Agricultural Outlook Forum at Union South at UW–Madison in Madison, Wis., Tuesday, Jan. 29, 2019.

“I’m actually thinking we have some room for optimism,” he said. Stocks of milk powder that built up as a result of the European Union’s program to help farmers should be gone by the middle of 2019.

In China, where dairy consumption per capita has been growing, there is still room for further growth.

“There, small dairy farmers are exiting faster than mid-sized and large dairies are growing,” he said, indicating that China is going to need to import larger amounts of dairy products.

Trade is a critical component to getting better milk prices. “The problem is that both nations have stubborn leaders,” he added.

The United States-Mexico-Canada Agreement (USMCA) has not yet been approved by Congress or the other two nations’ legislative bodies or signed and that needs to happen, he added.

Trade retaliation

Trade retaliation had a significant impact on milk prices in the past year, Stephenson said. When the tariffs were announced, milk futures dropped by $1.50 to $2 but the real impact should have been more like 50 to 75 cents, he added. “The government’s trade mitigation payments will pay producers 4 cents on impacted milk, but that’s almost negligible.”

Under his reasons for optimism in 2019, Stephenson said that milk production around the world and in the United States is slowing, world stocks of dairy are dropping, the U.S. economy is strong, trade improvements are being discussed and an El Nino weather pattern has been pounding the Australian dairy sector and could affect New Zealand too.

On the other hand, New Zealand started out its season strong, the gross domestic product in China is slowing which could affect their ability to purchase dairy products, trade negotiations have been prolonged and some economists feel a recession may be lurking for the U.S. economy.

“It’s hard to be overly optimistic,” he said. “Milk prices won’t feel good until exports reach a level of 17-18 percent of our milk production.”

He predicted that 2019 “will feel better than 2018 but not as good as 2017. We are losing farms but not our capacity to produce milk. Everybody is wondering if this is the new normal,” he said.

Analysis done by looking at farm records shows a $10 range in the cash cost of production on Wisconsin dairy farms, he said. “Twenty percent of the farms have cash-flowed right through this,” he said.

“We can’t declare the dairy problem over until we get into $20-$22 milk,” Stephenson said.

Useful information

Michael Slattery, a grain and vegetable grower from Manitowoc County, was at the Outlook Forum to hear the forecast on grains but also was interested in information presented by some of the experts on specialty crops and vegetable production.

“I work with the Wisconsin Food Hub Cooperative and I’m concerned about demand for fresh vegetables. It’s difficult for farmers and marketers to generate enough profit,” he told Wisconsin State Farmer.

“We have 120 farmers in the food hub, 80 in Amish cooperatives. How do we expand the business?” he said.

Jeff Lyon

Jeff Lyon, general manager of FarmFirst Dairy Cooperative, said the Outlook Forum confirmed things he’s been hearing in the dairy industry and from his farmer-members. His co-op has 3,500 members in seven states.

“It’s very difficult, very tough out there,” he said. “It really makes you think of the direction consolidation is taking on the farm side.”

Farmers are also not used to the length of the price downtrend that has been seen in the industry—now going into a fifth year. “They have been used to cycles but the fact that this is going on so long is new to all of them. I wonder if this kind of pricing is the new normal.”

After listening to a number of the economists’ presentations, Michelle Godez, a UW Short Course attendee and calf-raising employee on a Dodgeville farm, said she would like to see more people challenging the standards of large agribusiness and turning back the dial on the concentration in the dairy industry.

This information, she said, should be available and accessible to every farmer. “Knowledge is power,” she added.