The 2019 Ag Economic Outlook Forum was held Jan. 29 at Union South on the University of Wisconsin-Madison campus. This annual event is always a highlight of my year because it offers an intense discussion of agricultural economics, forecasting and data. This year, several of the speakers asked the same question – “Is there a new ‘normal’ for the agricultural economy in Wisconsin?”
Farmers know that their business is cyclical. For many years they thought in terms of three-year cycles. However, several of the speakers at the forum said that this cycle may be expanding and changing. Net farm income has been declining since 2013, with a small uptick in 2017.
Paul Mitchell, professor of Agricultural and Applied Economics and director of the Renk Agribusiness Institute forecasted that 2019 will be another year of tight margins and income uncertainty. However, he also discussed new options, especially for dairy farmers, in the federal farm bill, such as low-interest loans at one percent above the federal rate and Dairy Margin Coverage to help smaller dairies. Fortunately, our land prices have remained strong. Land prices increased 2.3 percent in Wisconsin in 2018. This follows a 9.5 percent land price increase in 2017. This has helped mitigate the equity erosion from losses the past few years.
While there is optimism and opportunity for Wisconsin’s farmers to grow markets, consolidate and diversify, Mitchell said that Wisconsin had the highest farm bankruptcy rate in the country in 2018 with 47 farms filing. Wisconsin’s overall farm bankruptcies have been increasing since 2015. In the past 15 years, Wisconsin has had a 49 percent decrease in the number of dairy farms from 15,904 to 8,110 farms. However, the number of cows in Wisconsin has remained stable.
As a result, the theme of the forum was “Dairy Consolidation: New Perspectives for America’s Dairyland.” Several of the speakers discussed the fact that farms are consolidating, and partnerships are forming to weather and capitalize on the new normal for agriculture. Dr. Marin Bozic from the University of Minnesota challenged us to consider why we are lamenting consolidation because it is an idea “as old as civilization itself.”
Bozic pointed toward production efficiency and higher yields. He said that even though the number of farms are declining, production is still strong. If we look at the history of ancient Egypt, we see a similar response to technological improvements and efficiency. When traditional farmers could produce more and better, some of them could turn their attention to other societal contributions.
Bozic said that the number of dairy farms drops 40-50 perent every decade, while the average farm size doubles. He said that this is because farmers are changing their management and financing models. Bozic said that farms are now less likely, than ever before, to rely on next generation family ownership for future planning. With multi-site dairy agribusinesses and family partnerships on the rise, farm businesses are turning to external equity financing rather than relying solely on retained earnings for growth and expansions. This has also enabled farm businesses to rely on multiple milk sheds and expand beyond the limitations of local processing capacities. As a percentage of dairy farms, Minnesota lost more dairy farms in 2018 than Wisconsin. The reduction in the number of farms is occurring throughout the nation.
Likewise, Dr. Mark Stephenson, director of dairy policy analysis at UW-Madison, said, “We are losing more farms, but not our capacity to produce milk.” Stephenson said that while the number of cows has decreased slightly, production per cow per day is up overall.
Stephenson said that while milk prices were low in 2018, they could have been worse. He cited consumer confidence in the U.S. economy as a major factor, slowing of milk production worldwide, declining world stocks, a strong domestic economy, trade improvements, the possibility of El Nino weather this year as well as the rise in cheese consumption nationwide. Americans consumed about 37 pounds of cheese per person, and he thinks that we have room to grow this sector because Germany and France both experience about 50 pounds per capita.
Fluid milk sales have been on a consistent decline since 2009 when they were 28 percent of all milk output. In 2018, fluid milk was only 20 percent of all milk production. Stephenson said that the US needs to grow cheese demand by one percent every year to offset the decline in fluid milk sales. There are opportunities both domestically and internationally. Unfortunately, Stephenson is not optimistic about milk prices for 2019. The contributing factors include prolonged trade negotiations, the possibility of a recession, slow GDP growth in some countries like China and the unpredictability of production in New Zealand which has significant fluctuations because of weather.
As your state Senator and the chair of the Senate Committee on Agriculture, Revenue & Financial Institutions, I will use everything I learned to ask better questions and seek solutions to our challenges. I appreciate all of the attendees who braved the cold and those who watched the live stream. Your contributions to these discussions are very important.
For more information and to connect with me, visit my website, legis.wisconsin.gov/senate/17/marklein, and subscribe to my weekly E-Update by sending an email to Sen.Marklein@legis.wisconsin.gov. Do not hesitate to call 800-978-8008 if you have any questions or need assistance with any state-related matters.