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Wisconsin Farm Economy Recovered In 2001

Stronger milk prices in 2001 led Wisconsin”s farm economy to a dramatic improvement over a disastrous 2000. Milk sales account for more than half of Wisconsin farm cash receipts, and the all-milk price for 2001 averaged about $15 per hundredweight – up $3.30 from the previous year, according to a report by agricultural economists at the University of Wisconsin-Madison”s College of Agricultural and Life Sciences. Higher milk prices added about $730 million to farm cash receipts last year compared with 2000.

Writing in Status of Wisconsin Agriculture, 2002, dairy marketing specialist Bob Cropp said he expects milk prices to be somewhat lower in 2002 than last year – but doesn”t see a return to the depressed prices of 2000. Commercial disappearance of dairy products fell after the terrorist attacks last year, as people dropped travel plans and dined out less often. For example, wholesale cheese prices – which strongly influence milk prices paid to farmers – fell from $1.70 per pound in September 2001 to $1.16 per pound by the end of October. However, cheese prices began to recover in November.

Milk per cow will rise about 2 percent this year, Cropp thinks, while milk cow numbers will decline about 1 percent. Milk prices will be lower, but relatively low feed prices will encourage farmers to feed for good milk production. Total milk production should increase about 1 percent to 1.5 percent in 2002, while commercial disappearance should grow by about 1.5 percent to 1.75 percent.

“The combination of slower growth in milk production and continued growth in commercial disappearance of milk and dairy products should yield relatively favorable milk prices,” Cropp says.

Two things blur the overall farm outlook for 2002, the researchers say. The effects of the Sept. 11 attacks and the related economic recession are still being played out, and the agricultural policy environment is still uncertain.

A national farm bill has yet to pass. The Senate”s version of the farm bill is at odds with both the House version and Bush administration guidelines. “This promises to create a contentious conference committee process and a potential presidential veto,” says ag economist Ed Jesse. “And even when a farm bill is passed and signed into law, there is considerable uncertainty about the appropriation of funds for farm payments that might be authorized by the bill.”

These payments aren”t peanuts. In 2000, Wisconsin net farm income included more than $600 million in direct government payments under various farm income support programs. Without this cash, state farmers would have shown a $250 million net loss for the year.

When it passes, the new farm bill will influence corn and soybean plantings, according to marketing specialist Randy Fortenbery. If current loan deficiency payment relationships between corn and soybeans continue, farmers will likely shift more acreage from corn to beans. This will raise corn prices slightly for 2002, and December futures prices could track above $2.65 per bushel. The shift will keep downward pressure on the price of beans, with prices averaging well under $5 per bushel.

Lower energy prices will reduce farmers” fuel and fertilizer costs for 2002, and help to stabilize or reduce prices for pesticides and other chemicals, according to farm finance specialist Bruce Jones. However, these lower input costs won”t offset the problems stemming from low prices for corn, soybeans and other crops, he says.

Farm operating loans dropped from 10.17 percent in 2000 to 8.01 percent in 2001, and will stay low for the coming year. The low rates will help farmers using credit, but the Federal Reserve has essentially cut rates as low as they can. Farm credit will not get much cheaper in 2002, Jones says.

Status of Wisconsin Agriculture, 2002 was written by faculty and staff at the Department of Agricultural and Applied Economics. The publication includes an overview of the financial environment in the Wisconsin farming sector, a review of current conditions for major Wisconsin farm commodities and forecasts for the coming year, and three special articles dealing with longer term issues facing Wisconsin agriculture.

* In The Macroeconomic and Policy Environment Created by the Events of September 11, 2001, Bill Dobson looks at the effects of the terrorist attacks on the overall U.S. economy, and reviews the implications for farm programs.
* In A Review of Wisconsin”s Farmland Use-Value Assessment Program, Bruce Jones examines how the 1995 legislation has changed the financial position of farmers, and reviews the impacts on local governments and homeowners.
* In Status of the Wisconsin Cranberry Industry, Ed Jesse looks at the cranberry boom of the 1990s and the events that led to the cranberry bust of 1999 and 2000, and comments on industry prospects for the near future.

To order a copy of Status of Wisconsin Agriculture, 2002, send $5 (includes postage) to Linda Davis, Department of Agricultural and Applied Economics, UW-Madison, 427 Lorch Street, Madison, WI 53706. The report can be downloaded free in Microsoft Word or PDF format at the department”s website .