What’s ahead? Change for sure
No one knows for sure what the coming year will bring to the nation’s and Wisconsin’s agriculture community but the annual UW Ag Outlook Forum offers a look at the past year in agriculture and members of the UW faculty present some thoughts as to what the future (2019) might hold.
A year of tight margins
Paul Mitchell, Professor in the Department of Agricultural and Applied Economics, at the UW-Madison, the leadoff speaker at the recent 2019 Ag Outlook Forum called 2018 “a year of tight margins in farming with income down and expenses up. Total crop income gained a bit (1.5 percent) but dairy income was down some 7 percent.”
“Yet,” he said, “farmland values in Wisconsin actually went up about 2.3 percent which was a surprise to many.”
Mitchell pointed out that Wisconsin’s 47 farm bankruptcies led the nation with Polk, Monroe and Dodge counties leading the list.
He also said that the already passed farm bill will provide some pluses for Wisconsin farmers especially dairy farmers.
Acres and weather
“Corn and soybean prices in the coming year will depend on acres planted and yields with the unknown export factor still much up in the air summarizes Brenda Boetel, Professor and Chair of Agricultural Economics and Agricultural Marketing Specialist at UW-River Falls.
“Ethanol production is a bit of an unknown" she said. “The amount of corn used for ethanol is lower due to Renewable Fuel Standard waivers granted last year. Negative margins have led to some plant shutdowns.”
A bad year
“It was a bad year for dairying,” said Mark Stephenson, director of Dairy Policy Analysis, UW-Madison CALS, “but it could have been worse. In contrast to the low milk prices of 2009 when there was a global recession, we have had a strong domestic economy."
Milk prices have ranged in the $16-$18 range for several years leading to dairy producer stress. Why the long period of low prices?
“Increasing production per cow with cow numbers rather stable are major factors," he said.
At the same time, Stephenson points out that dairy products are a good buy but not all categories benefit. Fluid sales are down dramatically but cheese consumption has risen from 13 pounds per person in the 1970’s to 37 pounds currently. At the same time, there is room for growth in the U.S he said, pointing to Germany and France with 50 pound consumption rates.
Another factor in the dairy surplus is the fact that there was a big surplus of milk powder in storage in Europe peaking in 2016 and now being depleted. It will be gone by mid-2019, he noted.
“China has a milk equivalent consumption rate of 23 pounds per person, the world rate is at 111 pounds and the US rate is at 640 pounds,” Stephenson said. “That offers much opportunity for our dairy products.”
The media is loaded with stories of difficulties on the dairy farms of the state, Stephenson provides his estimate of the status of Wisconsin dairy farms as:
- 20 % are cash flowing
- 30% have had to borrow more
- 30% have had to restructure loans
- 20% are in real trouble
Stephenson sees a 2019 Class III about 80 cents above that of last year with a peak of $16.50 with the all milk price near $18.00 per hundred.
“It’s hard to be over optimistic but 2019 will feel better than 2018. Is this the new normal?” he asks.
A farmer view
Pete Kappleman, owner of Meadow Brook Dairy Farm, a 450-cow registered Holstein herd with a 30,000 RHA (for over 12 years) in Manitowoc County offered a dairy farmer's perspective. He pointed out that he is the third generation graduating from the UW-Madison College of Agriculture, was the first president of the Professional Dairy Producers of Wisconsin and has been the Chairman of the Board at Land O’Lakes for 15 years.
Kappelman points out a few things we can count on in future dairying: increasing technology; economies of scale; price cycles that are longer and deeper; evolving consumer wants and preferences; ever evolving food production methods and labor challenges.
As an example of milk pricing, in a recent trip to Europe, Kappelman said he learned of “green payments” to farmers based on manure handling and other environmental measures.
As to exports, countries will always protect their own in terms of food production and availability, Kappelman said, adding that "we cannot predict the proliferation of populism and national sovereignty, tariffs , direct payments etc."
“Will consumers accept the science of plant breeding?” he asks. “Recent polls show over 80% of consumers support mandatory labeling of genetically modified foods. And they would like to know the farmer who produced the food. Consumer purchases—including food—are based more on “feelings” than cost."
Kappleman admitted that the lower milk price over the past several years cost his dairy about $2 million from his milk checks.
The future? “It’s not all about a race to milk 100,000 cows, it’s business as usual," he said. "Yes, we will find a way to feed the increasing world population."
“The year 2014 was a good year for agriculture,” Miron Rozic, University of Minnesota Ag Economist said. “High grain prices, record milk price, increasing milk production and rising exports. It was also a time of high cow prices and rising farmer retirements as they took advantage of cattle prices."
Today we are also seeing farmers selling out but the reasons probably center on financial issues, he says.
“The plus 2,000 cow herds are the only ones rising in numbers today," he said. “These farms are including non-family partners, external financing, may no longer ship to a single milk shed and are not last generation farms.“
Note: Rozic did not outline details or a timeline for this change but his forecasts are always a bit scary to me.
Consolidation is the word in agriculture today whether it be in size and number of farms or in processing plants. Exports are great but how do we gain and keep them? Technology is always changing as are consumer preferences.
What is the future of Wisconsin agriculture? Opinions are many and history is not always a good sign of the future. The only for-sure is change.
John Oncken is owner of Oncken Communications. He can be reached at 608-222-0624, or e-mail him at email@example.com.