Wisconsin Ag Connection - Low Milk Prices Cause $1.1 Billion Hit on State Farm Income in '09

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Low Milk Prices Cause $1.1 Billion Hit on State Farm Income in '09
Wisconsin Ag Connection - 01/20/2010

We now have a better idea of how much damage was done to the state's agricultural economy when Wisconsin dairy producers took a 50-percent cut in milk prices during parts of 2009. On Tuesday, the University of Wisconsin-Madison's Department of Agricultural and Applied Economics released it annual 'Status of Wisconsin Agriculture' report. Ag economists say total net farm income plummeted by 56 percent to $1.1 billion--which is the lowest level in seven years. Wisconsin farm commodities were down $1.8 billion from the year before, with nearly 80 percent of that decline representing the dairy industry. Another 15 percent was from reduced crop receipts, mainly from lower corn prices.

"The Wisconsin all-milk price averaged around $13 for the year, down from a record $19.27 in 2008," stated UW Economist Ed Jesse. "The drop was largely because export markets dried up, leaving more milk to be absorbed by domestic markets that were already crimped by the recession."

The school's economists say Wisconsin dairy farmers' aggregated net worth decreased by an estimated $1.8 billion. Two-thirds of that came from a drop in the value of cows and heifers. Another 20 percent was because of a drop in the value of farm real estate, while the rest represents negative cash flow.

Meanwhile, dairy farm debt increased, with the debt-to-equity ratio rising from .15 to .18.

"This indicates the weakened position of the Wisconsin dairy industry. Nonetheless, a debt-to-asset position of position of less than .20 still represents a sound financial position overall, despite some serious problems on the individual farm level," Jesse noted.

Looking at some of the other sectors of the state's farm industry, Wisconsin's corn crop is forecast to be about at 423 million bushels, up 29 million bushels from the previous year. The USDA says Wisconsin harvested 67 million bushels of soybeans in 2009, up 20 percent from 2008.

Recovering from the huge 2008 crop, Wisconsin cranberry marshes produced an 11 percent smaller crop in 2009, but higher prices will result in a smaller reduction in revenue. Apple production was up three percent and the tart cherry crop was close to 2007 after a near crop failure in 2008.

Wisconsin grew a large fall potato crop in 2009. Unfortunately, so did other major states, causing prices to fall well under 2008 by year-end. Wisconsin processing vegetable growers produced larger crops of sweet corn and green peas in 2009, but slightly less snap bean tonnage.

Looking ahead, the report stated that the economy will be driven by tailwinds in the form of fiscal and monetary policies designed to stimulate the economy in 2009, which will continue and perhaps become more aggressive in 2010. The availability of credit will be an issue in the face of tighter loan qualification standards, less money to loan, and some bankers’ reticence to make agricultural loans.

And dairy farmers are expected to fare much better in 2010. The national dairy cow herd will continue to shrink for most if not all of the year. The expected 2.4 percent decline in cow numbers will more than offset a 1.8 increase in milk per cow, reducing milk production.

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