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From Bad To Better And Back To Bad

Wisconsin net farm income has gone from bad to better and back to bad over the past three years. This year, things will likely improve a bit, predict University of Wisconsin-Madison agricultural economists.

The state”s net farm income in 2002 was in the range of $600 million to $700 million, down $200 million to $300 million from 2001 and below even the depressed levels of 2000. Those estimates come from “Status of Wisconsin Agriculture,” an annual report by the College of Agricultural and Life Sciences” Department of Agricultural and Applied Economics.

“Since the early 1990s, Wisconsin net farm income has mostly trended down,” says economist Bruce Jones, one of the report”s authors. “The high-water mark was in 1989, when we had about $1.6 billion of net farm income. It fell to a low of just under $500 million in 1996, rose to about $1.3 billion in 1999, then dropped to $700 million in 2000. In 2001 it was about $900 million.

“So earnings in 2000 and 2001 were only about half of what they were in 1989, and slipped even further in 2002 because the milk price wasn”t as strong,” Jones adds.

“For 2003 we”re hoping for some recovery in milk prices. In addition, with the 2002 farm bill in place, a good percentage of Wisconsin farmers will have support on milk prices.”

That support will come from the Milk Income Loss Contract program, which makes direct payments to dairy farmers when milk prices fall below specified levels. For 2002, MILC payments are expected to compensate for about a third of Wisconsin dairy farmers” reduced income.

The economists believe that positive factors will outweigh negatives in 2003. They estimate that Wisconsin net farm income this year will climb to the $900 million to $1.1 billion range. The report”s authors make the following forecasts:

? The authors expect Wisconsin”s 2003 average all-milk price to end up about $13.55 per hundredweight, $1.45 higher than 2002 but well under 2001”s $14.80. Adding MILC payments to marketplace returns will elevate average Wisconsin 2003 milk revenue to $14.00 to $14.50 per hundredweight.

? Cattle prices in 2002 averaged about $5 per hundredweight lower than 2001. Choice cattle prices in 2003 should be up about $3, but prices for cull dairy cows will show only marginal gains. Feeder cattle prices are expected to be $6 to $8 higher.

? Hog prices in 2002 dropped almost one-fourth from year-earlier levels. In 2003 lower meat supplies should raise hog prices by about $5 per hundredweight to $40.

? Wisconsin corn producers lucked out in 2002, enjoying a 10 percent larger corn harvest than in 2001 while many other states suffered drought-induced shortfalls. The short national 2002 harvest could yield season-average prices in the $2.35 range, sharply higher than seen over the last four seasons.

? While the U.S. soybean crop was down 7 percent in 2002, Wisconsin”s production was up 15 percent ? even though state farmers planted fewer soybean acres. The short crop should bring national prices near $5.50 per bushel, more than $1 over what farmers received for the 2001 crop and the highest soybean price since 1997/98.

? Farm production expenses will be a mixed bag. Seed will be a bit cheaper and fertilizer prices will rise marginally if at all. Fuel prices are a big unknown given uncertain political conditions in the Middle East. Low interest rates will keep farm credit inexpensive by historical standards to credit-worthy borrowers. Land rents won”t change much, but the cost of buying land will continue to rise due to speculative non-farm investor pressures.

Increasing farmland values are keeping the balance sheets of most Wisconsin farmers strong despite low farm revenues. Wisconsin farmers” debt rose $900 million between 1997 and 2001, while assets increased more than $13 billion. That asset gain was entirely due to a surge in land values fueled by interest in the land for non-farm uses.

This combination of increasing land values and decreasing revenues puts farmers in an ironic situation, the economists note. Many farmers have plenty of collateral for operating loans for enterprises that aren”t generating enough income to repay those loans.

“This is not a sustainable situation,” the authors conclude.

Copies of “Status of Wisconsin Agriculture, 2003” can be downloaded from the Internet at http://www.aae.wisc.edu/www/pub/