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Farmers, Dairy Producers Face tough Decisions for Spring

By David Tenenbaum
 
As farmers hustle to finish the harvest, there is no sign of a letup in the long-term slump in commodity prices that are now being fed by trade and tariff tensions. The result is “almost a perfect storm,” says Mark Hagedorn, a UW-Madison Division of Extension dairy/animal science agriculture educator in Eau Claire County.
 
“Milk prices are in the tank. Corn and beans are not meeting the cost of production. With $3 [per bushel] corn, not a lot of people can make money, and the same is true of wheat and just about everything else. It’s about as challenging a time as I have seen.”
 
Farmers are already starting to plan for next year, says Paul Mitchell, a UW-Madison professor and extension specialist in agricultural and applied economics, and their choices are neither easy nor pretty. “By the first of the year, or by the end of January, a big chunk of planting inputs have already been bought, including seeds.”
 
There aren’t many bright spots in the picture.
 
Soybean exports have stalled as the biggest buyer, China, is shopping elsewhere in retaliation for U.S. tariff hikes on Chinese products. This comes at a time when soybean plantings are high in the state. In 2017, for the first time, U.S. farmers planted more acres of soybeans than corn.
 
Beyond Wisconsin’s mainstays – corn and soybeans – other crops are taking a beating, and new U.S. tariffs have only added more uncertainty. Wheat, a fallback crop with lower cost of production, offers little refuge in today’s market, Mitchell says.
 
Wisconsin grows 60 percent of the U.S. cranberry crop, and this year the projection is that they will divert about 10 percent of the harvest to non-market uses to help balance supply and demand. Tariffs have all but ended their years of work to create and grow a cranberry export market in China. Nationally, Wisconsin ranks first in snap bean production and third in sweet corn and green peas. The state exports some of these vegetables – mostly in canned form – especially to Japan, but now those products are also caught in trade war.
 
So what is a farmer to do?
 
Soy was “a nice option last year,” Mitchell says, “but the soy market has fallen apart, with the tariffs playing a big part. I don’t know what farmers are going to do this year. They are looking for a low-cost crop, but it will not be soy.”
 
In dairy, “The picture is fairly grim,” says Mark Stephenson, director of dairy policy analysis at UW-Madison. “Although we have had moments with a little optimism when it looked like prices were starting to turn around, low prices have lasted four years. I expect that 2019 milk prices will show about a one dollar improvement over 2018, but that isn’t where most producers need them to be.”
 
The real problem, Stephenson adds, “Is not the depth of the prices, but their persistence.” Though farmers with a low cost of production have met their expenses through the price slump, “I would not say it’s been great, but they are making it. Others have been bleeding cash, and probably will continue to do that for a year or two.”
 
Farm retirement income is often dependent on capital amassed in buildings, equipment, livestock and land, Hagedorn says. Even producers who have a positive cash flow “are still experiencing balance sheet erosion. They are getting the bills paid, keeping things repaired, but have zero spare capital left to purchase anything new. Dipping into capital to keep the farm afloat endangers their retirement.
 
The long slump, Hagedorn adds, “is having an impact on tractor dealerships and car dealerships. People just are not buying new equipment and new vehicles for the farms. It’s got a broad and deep impact on farming areas, on all sorts of levels.”
 
The annual rate of farm losses has reached 7 percent, well above the 4-5 percent average. “A big part of this attrition is older farmers who are getting up toward the age when they might think about retirement,” Stephenson says, “and it does not make sense for them to borrow money from equity, to keep on milking, so they sell the cows.”
 
In some cases, the decision will be governed by lenders who are unwilling to lend as much as previous years, forcing a reduction in planted acreage, or a shift to lower-cost crops.
 
Farm markets generally operate in cycles, but prices have been low for years, Stephenson says. “People are struggling, trying to understand this. Is this unusual, or is this the new normal? I am not entirely sure we know the answer yet. If this is the new normal, people have to reimagine whether this is an industry they want to be involved in for the long term.”
 
The next farm bill may attempt to reduce output by increasing the acreage set aside in conservation reserves. New trade agreements could restore overseas markets that are rejecting U.S. products, Hagedorn says. “This is not just about Wisconsin. We have the ’90-90′ rule: 90 percent of milk in Wisconsin is turned into cheese, and 90 percent of the cheese is sold outside of Wisconsin. Agriculture isn’t just a United States thing anymore, we’ve got to figure out meaningful ways to trade, be equitable, be reasonable with each other.”