Agriculture market report: Hitting a rough patch

After several solid years, the farm economy is in a slump.

From the pages of In Business magazine.

2015 brought mostly bad news for farmers. With land prices taking an unusual dip, any Wisconsin farmer hoping that consistently growing land values would provide an ever-higher retirement cushion was in for a rude awakening. The 3% drop in land values did provide some momentary relief for new farmers looking to get started, but the steady rise in farmland values leading up to 2015 meant they still needed ample financing help.

Elsewhere, the news was consistently disappointing. Milk prices dropped upwards of 30% last year, in part because dairy operators expanded their herds to take advantage of much higher prices in the years leading up to 2015, causing a glut in the milk market.

When milk prices are low, farmers have to borrow to pay their expenses. “Milk prices are below what break-even would be for us,” says Troy Statz of Statz Bros. Inc., Marshall. “We had to borrow money to make the operation go — current expenses and labor.”

Exports took at hit as Wisconsin’s total agricutural trade value declined in 2015 with each of the state’s top markets for agricultural exports.

Adding insult to injury, the Wisconsin Supreme Court ruled that manure should be considered a pollutant under farm insurance policies, adding another layer of importance to practices that prevent runoff into local watersheds and lakes.

The downturn also is impacting agricultural equipment makers. John Deere lowered its fiscal 2016 guidance because it expects the sales of agricultural equipment to fall by 10%.

There haven’t been many silver linings lately but as we’ll see in this market report on agriculture, area farmers keep plowing away in terms of their operations, their stewardship of land and environment, and their commitment to emerging farm-to-fork trends.

China’s slowdown + strong dollar = weaker exports

China is Wisconsin’s third-largest market for state exports and with its economy slowing down, today’s global market ensures that anything occurring in China will likely affect Wisconsin’s economy.

In 2015, a disappointing year for Wisconsin trade, total agricultural exports to China were valued at $230 million, a 20% decrease from 2014. The Chinese are particularly interested in the state’s mink furs and hides as well as dairy and cheese products, notes Ben Brancel, secretary of the Wisconsin Department of Agriculture, Trade, and Consumer Protection.

Whey, a byproduct of cheese making, is also high on China’s list, and Brancel expects orders to increase. “At one point, [China] over purchased and they had a lot in storage. I expect that soon they’ll be back to buying more whey.”

The stronger U.S. dollar can also hamper orders because it raises the prices of exports. As product prices increase, sales decrease, impacting the bottom-line for businesses in the world marketplace. “It puts pressure on being able to sell products,” Brancel explains. “So China’s slowdown, either the currency devaluation there or the strength of the dollar in the world market, does have an impact here. I wouldn’t call it alarming, I’d call it a concern.”

Brancel remains optimistic, saying he anticipates China to come back. “Their population is huge. Even in their slowdown they’re still building a middle class that is larger than the U.S., so I anticipate they’ll seek out more opportunities to purchase agriculture-related products than they have in the past.

“I also think they’ll struggle to produce the beef they want and desire, and think they’ll look to the U.S. for that.”

One of the many issues the current Congress is wrestling with is whether to pass the Trans-Pacific Partnership free trade agreement between the United States and Asian countries. The agreement would establish the largest free trade area in the world, theoretically reduce China’s regional influence, and cut tariffs and trade barriers for 40% of the global economy, representing one-third of world trade.

After eight years in negotiation, 12 countries including the U.S. signed the pact in February and have two years to ratify the agreement through their respective government bodies. Besides the U.S., the countries involved are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

Brancel admits the agreement’s effect on Wisconsin agriculture remains unclear. “If you visit with most in the world of agriculture, they’re all very positive about TPP, but there is some hesitancy around the dairy portion,” which he says is unclearly written. “I don’t think TPP will be dealt with until after the presidential election, but it may happen prior to a new president being seated,” Brancel predicts.

3 ways farms milk technology

Many jobs are linked to the strength of agriculture, as Wisconsin residents are as economically connected to state farmers as Americans are to the rest of the world, if not more so. That’s partly why the state, in the 2015–17 biennial budget, has tripled funding, from $500,000 to $1.5 million, for its Broadband Expansion Grant Program.

The state’s agricultural industry already uses information technology, but stronger broadband coverage in rural areas would add another dimension. Dr. Jerry Gaska, a veterinarian who serves as dairy manager of Nehls Brothers Farms outside of Juneau, uses IT and what he characterizes as adequate broadband service to help manage a farm operation with 2,000 milking cows.

  1. Software salvation: Whether it’s QuickBooks for accounting or DairyComp 305, a herd-management system, IT plays a prominent role. DairyComp contains the farm’s animal records, including information on care history such as test results or when antibiotics were administered. The real power in the software is that it generates action lists on the timing of vaccinations or breeding, and enables the farm to analyze data on matters such as milk production from calf to cow. “We use that information to make decisions about management changes that we would institute for the young stock,” Gaska explains.
  2. Radio activity: At Nehls Brothers, every animal has a radio frequency identification chip in its ear. The farm uses RFID to record “milk weights” and transmit the data to Dairy Comp, and it uses software in combination with an RFID scanner to download information. “As we walk by the cows, it will identify the cow and tell us, on a handheld wireless computer, whether it needs a vaccination or whether it’s time for a pregnancy exam.”
  3. Remote possibilities: Broadband also comes into play for research into milk prices or best practices and for managing the herd remotely. “We’ve made some recent improvements to coverage but it’s always been a challenge,” Gaska notes. “Other dairies don’t have real high-speed Internet. It’s very difficult to do the remote support because it’s slow.”

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Farm Focus on Energy

Farmers are getting in the energy conservation and sustainability game, but they are not just agreeing to site wind turbines on their farmland. They are investing and reaping returns through the state’s Focus on Energy program.

Heather Feigum, program manager for Focus on Energy’s agriculture, school, and government program, says the goal is to help farmers use less energy to do the same job. “They still need to milk the same amount of gallons per day and they still need to harvest the same amount of crops per year, but our goal is to help them reduce their utility bills,” she says. “Even though milk prices are dropping, we’re still able to help them increase their bottom line.”

Enabling state legislation requires Focus on Energy, which is funded by state investor-owned utilities, to devote 10% of its annual budget to agriculture, schools, and government. Through either a prescriptive or custom incentive, farmers work with a trade ally contractor to install modern equipment.

The first step, however, is for Focus on Energy to consult with farmers to review their energy use. In the event a new piece of equipment can reduce their energy bill, Focus on Energy will analyze energy savings and payback. “There are some that are very quick paybacks, six months or less, but if it’s a custom project that isn’t on our prescriptive forms, we can’t do any projects that are less than 1-1/2 year payback,” Feigum explains.

Farmer Troy Statz of Statz Bros. Inc. in Marshall has tapped Focus on Energy to install energy efficient equipment and lighting, including a generator with a high-efficiency engine that uses less cubic feet of gas to produce a kilowatt of power. With an anticipated payback of five years, Statz views his collaboration with Focus on Energy as a win-win for both parties. His win comes in the form of lower operational costs, which is why he’s concerned whenever he hears that utilities want to cut funding for Focus on Energy.

“It’s disappointing to hear,” he opines. “For what we’ve put in place here in the dairy industry, with digesting and producing power, it’s a win-win for everyone.”

3 techniques that stop the spread

Precision tillage is one of several manure management practices of local farmers. Photos by Studio 88 and Yahara Pride Farms staff

Endres Berryridge Farms is owned and operated by brothers Steve, Jeff, and Randy Endres, but their association with another farm entity might be their most enduring agricultural — and environmental — legacy.

At about the same time the Clean Lakes Alliance formed, so did an organization called Yahara Pride Farms, which promotes innovative and sustainable manure management techniques. When it comes to preventing manure from getting into the Yahara watershed and eventually into local lakes, Endres Berryridge Farms has done more than chip in. It’s leading the way.

Yahara Pride has been instrumental in educating farm operators on three win-win practices:

  1. Cover crops. A cover crop is planted after an earlier crop is harvested. For instance, if a farmer plants wheat and harvests it during the summer, he or she can follow that wheat crop with a cover crop instead of letting the land remain fallow, which helps keep soil in place and prevents erosion. Some cover crops like legumes will actually put nitrogen back in the soil, and that nitrogen will be available for subsequent crops. Other examples of cover crops are winter rye, barley, and oats.
  2. Low-disturbance manure injection. This application, which puts manure below the soil’s surface without over tilling, is executed with equipment available through Yahara Pride’s cost-share program (to mitigate financial risk). “It allows farmers to do minimum tillage and in some cases even no tillage after the manure is applied,” Endres says. “That cuts down on a erosion and the potential for sediment and nutrients to leave the field.”
  3. Precision tillage. Precision tillage usually is done in conjunction with GPS. A farmer plans the layout of tillage so that only a six-inch strip is tilled, and that’s where they plant. “Corn normally would be planted into the strip, so you do strip tillage in the fall and then you come right back in during the spring and you can plant exactly in the same strips,” Endres explains. “You cut down on the amount of tillage that’s done. Instead of tilling 100% of the soil, you are only tilling about 25%.”

About 60 farmers do conservation work through the Yahara Pride cost-share program, and the organization has connected with nearly 300 other farmers through publications and educational outreach. “This year we will be cost-sharing $40 an acre — up to 50 acres of cover crops per farm,” Endres says. “That translates to approximately 2,500 to 3,000 acres.”

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Ag's future looks bright

While there may not be as many multi-generation family farms in Dane County and southern Wisconsin as in decades past, that doesn’t mean there’s a dearth of young people interested in farming.

Future ag industry workers are not only interested in the plow but disciplines like food science, as well. Photos by Jeffrey Hoffelt. Owned by Wisconsin FFA Foundation

In fact, there’s been no drop off in the numbers of young people entering agriculture and related fields in Wisconsin because career opportunities have only expanded over the years. John Klatt, assistant dean of the UW–Madison College of Agricultural and Life Sciences, says based on enrollments students clearly still have an interest in agricultural careers and working for companies in the ag industry. Growth isn’t just limited to majors in biochemistry or genetics, either. Traditional agriculture majors, such as agronomy, animal science, dairy science, and plant pathology, also have growing enrollment.

Klatt says one of the biggest barriers to recruiting young people to farming is experience. “As there are fewer and fewer family farms, not only in Wisconsin but throughout the Midwest, it’s harder to recruit students into agricultural majors. Students just don’t have a familiarity with production ag. That said, there’s also a good number of students who come here, and because they’re interested in things like where their food comes from, they join organizations like F.H. King, a student organization focused on sustainable agriculture, and it spurs an interest.”

Much is also being done to address the experience gap at the high school level in Wisconsin, says Sara Schoenborn, executive director for the Wisconsin FFA Foundation. “We’re still very involved with farming and our roots, which we typically would refer to as sows, cows, and plows, but now FFA is so much more. It includes genetics, food science, and other career fields related to agriculture.”

Urban farming has begun to capture the interest of young people.

According to Schoenborn, Wisconsin FFA is at a 31-year membership high, with 19,484 members in about 250 chapters statewide. Not only is every FFA member enrolled in agricultural education classes, they also have supervised agricultural experiences (SAE) where they take what they learn and apply it in a real-world setting. “It’s their own individual project in one of about 48 different project areas, everything from floriculture and nursery landscaping to milk quality, dairy handling, food service — all of those apply,” notes Schoenborn.

One area that’s capturing the attention of young people is urban farming, Schoenborn says. Wisconsin FFA recently welcomed its first urban chapter at Milwaukee Vincent High School. “Even with CSAs here in Madison and community gardens, everyone is starting to make this push back to a more local food movement.”

Raw retrospective

The arguments remain the same: proponents for raw milk claim the unpasteurized liquid contains bacteria that’s beneficial for humans, while opponents claim just the opposite — that raw milk can make people sick and lead to food-borne illnesses such as E. coli or salmonella that could threaten the state’s $23 billion dairy industry.

For Loganville farmer Vernon Hershberger, the fervor has died down. After his landmark case in 2013, which first began with a 2010 DATCP raid on his milk operation, Hershberger has quietly resumed life on the farm and continues selling unpasteurized milk to a members-only buyer’s club, Grazin’ Acres, that has seen a bump in interest and membership since the trial. He was acquitted on three of four counts brought against him by the state and in the end only had to pay a $1,000 fine for violating a holding order.

So where does the raw milk controversy stand? It’s definitely quieted down, states DATCP Secretary Ben Brancel. The state’s rules are clear: the sale of raw or unpasteurized milk is illegal, but incidental sales of raw milk to farm employees or family members is allowed so long as it’s not considered regular business or advertised.

In a well-publicized case last fall, 33 Durand High School football players and five coaches fell ill after attending a potluck dinner where raw milk was served.

“After that case became public, those that support raw milk quieted down, though they still strongly support it,” notes Brancel, adding that the department continues to educate raw milk producers of the state’s position. “But let’s face it, if someone wants to buy it, there’s always someone to sell it.”

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Land values pinch farm-to-fork

Whether it’s the result of the numerous media reports from a couple years ago about “pink slime” being added into ground beef or just a more concerted effort by Americans to be healthier, there’s no denying people increasingly want to know where their food comes from.

That’s led to the rapid growth of the slow food, or farm-to-fork movement, which is concerned with producing food locally and delivering it straight to consumers.

Michael Bell, director of the Center for Integrated Agricultural Systems (CIAS) at UW–Madison, says local community supported agriculture (CSA) groups, like the Fair Share CSA Coalition based in Madison, are practically flooded with requests to join and receive shares of produce and other foods. Meeting that demand is more problematic.

“We have yet to figure out the solution to a pretty big dilemma, which is if you’re going to have local food around the city, you’re talking about producing it precisely where the land values are the highest,” he notes. “This is a big barrier for beginning farmers and for diversifying our farmers.”

Bell notes there is significant interest among millennials and other groups in farming, but access to an affordable land base makes it difficult to get an operation up and running.

“It’s not only an issue for millennials but also for some of our new immigrant groups, many of whom are very committed to farming but don’t have the capital base behind it,” Bell says. “For generations families have handled this problem by transferring the land within the family, but with the development pressures around Madison it just means that the land values make it really hard for people to get started.”

According to Bell, community gardens are one way more people are getting involved with the local farm-to-fork movement, and there are production possibilities within Madison, as well as peri-urban areas just outside the city.

“A great thing about vegetable crops is they don’t require an enormous amount of acreage, but even small amounts in our area are getting hard to find,” notes Bell.

3 fruitful farm-to-fork projects

The CDR's Kimberlee Burrington might have a new research home.

Becoming an IMCP (Investing in Manufacturing Communities Partnership) designee was a real coup for the Madison Region Economic Partnership, but it’s an even greater coup for the local agriculture, food, and beverage sector. Thirty local projects representing a total of $130 million in capital costs, augmented by a 3-to-1 ratio of public-private financing, will now move forward.

Led by the U.S. Department of Commerce, IMCP is a multiagency program to develop long-term economic development strategies, and the designation is an important signal to potential investors that Greater Madison is a good place to spend their money.

To maximize return on investment, the designation is only given to areas that use federal dollars on high-impact projects. Paul Jadin, president of MadREP, recently discussed three such projects.

  1. UW Center for Dairy Research. The designation could bring federal dollars for workforce development, infrastructure, and a Centers of Excellence designation for the CDR. MadREP continues to pursue both federal and state designations for a Center of Excellence that would attract more grant money. It’s also looking to have incubator space in the Center’s proposed new building or its existing space (the Babcock Hall Dairy Plant).
  2. Madison Public Market. MadREP is working with the city of Madison to get a better handle on its capital needs for this project, to be built on Madison’s east side, because it’s possible the market will be built with the help of federal funds. Jadin hopes the city will take a holistic approach involving growers, producers, distributors, and consumers. “We’d like to see all the needs of agriculture represented here,” he states.
  3. Wisconsin Innovation Kitchen. Another priority is contributing to the $1 million expansion of the Wisconsin Innovation Kitchen in Mineral Point, which would add dry and cold storage to the structure. The kitchen, a commercial food processing facility, is focused on helping small food businesses, including family farms, and supports people with disabilities. “It’s one of the projects that’s already out of the chute,” Jadin says.

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3 farm finance factors

Five years after the financial crisis, Wisconsin farms are well served by agricultural lenders, despite bank consolidations that negatively impacted rural areas. Wisconsin bank lending to farms jumped 17% in 2015 to nearly $3.1 million, and that one-year jump is partly due to increasing costs, according to Matt Towns, vice president of agricultural lending for DMB Community Bank.

“Our community banks, especially here in south-central Wisconsin, are large enough to handle these agricultural numbers,” Towns says, “but that presents a challenge for a lot of community banks in smaller communities.” There are several cost factors affecting farm finance, but here are the main three.

  1. Lucrative landscapes: Before 2015, the weighted average price of agricultural land in south-central Wisconsin and statewide had been rising, but lower milk and grain prices combined to drive agricultural land prices down 3% in 2015, according to the Center for Dairy Profitability. Using data from the Wisconsin Department of Revenue, the center’s 2015 report on Wisconsin agricultural land prices indicates the average per-acre price rose nearly 30% from 2010 to 2014 in the south-central region before declining by 11% last year.
  2. Technological tally: While technology has improved productivity and efficiency, technologically advanced equipment comes with a price. “Every tractor and every piece of equipment is now digital and things just cost more than they did a few years ago,” Towns explains. “That’s the downside of technology.”
  3. Seed surge: The cost of seed corn, which is also heavily influenced by technology, is also rising. Seed corn producers have developed hybrids to produce larger and more efficient crops, but related research and development costs are passed to farmers.

Fortunately, the U.S. Department of Agriculture’s farm credit system supports rural communities with credit for seeds, livestock, and land and equipment purchases. Badgerland Financial is one of 75 independently owned farm-credit-system cooperatives that combine to provide more than $200 million annually to member owners, more than one-third of the credit needed by the agricultural sector.

“The cost of production is very close or exceeds the prices a farmer is able to receive right now,” notes Dawn Haag, assistant vice president at Badgerland Financial. “This is true for grain crops as well as livestock products.”

Food-borne faux pas

First it was listeria in Blue Bell ice cream and Dole Foods’s packaged salads. Then it was E. coli at Chipotle Mexican Grille Restaurants, and these are only the American consumer’s most recent experiences with food-borne contamination. Who knows what other evil lurks in the food we buy in stores and restaurants?

Each year in the U.S. 1,600 people get sick from listeria, a bacterium, and 260 die. Most forms of E. coli, a diverse group of bacteria, are harmless and part of a healthy human intestinal track, but some strains cause human illness. What’s next are multi-state outbreaks, product recalls, rejected shipments, and legal action.

James Brunker, senior account executive and partner with M3 Insurance, says parts of the food supply chain, particularly food manufacturers and packaging companies, are caught off guard by food-borne illnesses. “We have a lot of people that may be responsible for the purchasing of insurance in their organizations and think they have coverage when they don’t,” Brunker notes. “When they see something like a Chipotle restaurant in the news, it’s a reminder that it’s still a major issue out there.”

Mostly, it’s a major issue for food processors and restaurants — not farmers. “Generally not,” Brunker concedes. “If cucumbers are not properly washed, who’s responsible for that? It’s usually the packer, not the grower.”

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