Farmers Solid in 2011, Export Potential High

By most measures, Wisconsin's diverse agricultural industry is enjoying a strong 2011. After a difficult 2009, strong international demand for corn and soybeans has enabled Wisconsin growers to enjoy two strong earning years. After initial concerns that milk prices would drop, they remained above the break-even point, enabling dairy farmers to post better income gains than many expected. To the surprise of nobody, Wisconsin remains the cheese-producing capital of the nation, producing 219 million pounds of cheese in September, outpacing second-place California's 181 million pounds. The state's farmland values increased 8% in the past year, and recently enacted trade agreements with South Korea, Colombia, and Panama, which removed existing trade barriers, carry the promise of a multimillion-dollar boost for an industry that saw farm exports increase by 24% in the first nine months of 2011.

 

Volatile preferences

That's not to suggest everything is rosy for Wisconsin's $59 billion agriculture industry. Some crop farm profits were offset by higher "input" prices for fertilizer and fuel, some dairy farms feel the grain price pinch if they don't produce enough of their own feed – and weather can always rear its ugly head. Wisconsin's 2011 ginseng harvest was down about 30%, but some decline was anticipated due to a spring 2010 snowfall that damaged or killed roots throughout central Wisconsin.

With good yields and prices for most farm commodities, Wisconsin farmers are not in a position to complain. "In general, I would classify it as a better-than-average year," said Elk Mound farmer Jim Holte. "We've been in a very favorable situation with the price of most commodities."

Holte, who also raises cattle, produced corn yields ranging from 140 to 190 bushels per acre, most of which is used to feed his livestock. Corn prices ranged from $6 to $7.50 per bushel, but Holte prefers volatility in corn prices because when prices are steady, "they are always steady low."

The $12.40 per bushel he received for soybeans was augmented by a premium of $1 to $2.50 per bushel for different varieties of the soybean crop, most of which goes to market. Holte does not directly export soybeans, but sells them to a company that exports.

Raising cattle carries the greatest expense, and greatest revenue potential, for the Holte farm. In March and April, Holte buys feeder cattle, young animals who are raised and sold on the market the following January and February. The 11-month cycle now begins with high prices for feeder cattle but also the potential for a high selling price. Holte uses the Chicago Board of Trade to lock in a margin of at least $100 per head for a herd of between 350 and 400. He will invest about $900 for a 550-pound Angus steer, one of several cattle types raised on his farm, but he anticipates a favorable market next year.

"I'll probably sell cattle for a higher price than I've ever sold it before," he stated.

Dick Gorder, a Mineral Point dairy and crop farmer, said regionally and locally, farmers saw high input prices during this past summer. "Wisconsin itself has done really well because we pretty much raise our own crops every growing season," he noted. "For the farms that buy most of their own inputs, the margins are pretty tight."

Wisconsin has an advantage over Western states because many farmers here grow their own feed and aren't as impacted by a sometimes volatile grain market. California developed its agricultural industry on a small land footprint, purchased-feed model, which worked well when corn was around $2 to $3 per bushel, but now that those prices have doubled, "that Western model is now under a great deal of pressure," Gorder said.

The per-acre corn yield of some southwestern Wisconsin farmers was impacted by a July 2011 storm that was so damaging that it literally lowered the height of Gorder's corn. For farmers in the southwest region, the storm made 2011 more of a solid growing season, but not as exceptional as 2010, when farmers got their corn planted early and had a good drying period in the fall. For Gorder, timing came to the rescue when grain prices held up at harvest time.

Gorder chose not to lock in a price early, and sold his corn for $6.30 per bushel at harvest, the highest price he's ever received for that crop.

Roughly 60% of Gorder's corn and 50% of his 60-bushel per acre soybean yield are used for feed on the farm.

As a dairy farmer, the hundredweight price of milk is a key metric, and those prices averaged a healthy $18 to $19 per hundredweight. Milk yield also is important, and like crop production, it can be impacted by weather. Gorder's 70-cow herd produced a typical annual yield, but "we got hammered in July with high heat and humidity for an extended period," he said. "Our milk production dropped about 15% to 20%, depending on the state of lactation for cows. Cows that are farther out in their lactation don't respond as well to those conditions."

Trading post

Global trade has become increasingly important for Wisconsin farmers, and they applaud the recently enacted trade agreements with South Korea, Panama, and Columbia, especially the removal of long-standing tariffs on American goods. "When you take down those barriers, you increase the demand for your products, and you increase the competitiveness of your products," Holte said.

According to Gorder, the South Korean deal should have the most impact on Wisconsin agriculture because South Korea is the world's fifth largest economy and the nation is "land short," creating more sales opportunities for farmers.

Casey Langan, executive director of public relations for the Wisconsin Farm Bureau Federation, said strong demand for food from burgeoning middle-class economies in China, India, and Brazil, fostered by a relatively weak U.S. dollar, have been driving demand for Wisconsin farm products. "Asia's middle classes are expected to double in the next decade," Langan noted, "and its consumer market will account for an estimated 40% of all global consumer spending."

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