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Milk prices and Wisconsin farm income hit record highs in 2004

University of Wisconsin-Madison agricultural economists dusted off some long-idle superlatives to write their year-end review of the state”s farm sector, and they”re fairly optimistic about prospects for the year ahead.

“For most Wisconsin farmers, 2004 was a very good year. For dairy farmers, it was a spectacular year, one that will likely serve for many years as the yardstick in coffee shop debates about the good times,” reads the opening paragraph of Status of Wisconsin Agriculture, 2005, released this month by agricultural economists in the UW-Madison College of Agricultural and Life Sciences.

Most livestock producers also had a good year, the report says. Corn and soybean producers enjoyed a strong market until a huge 2004 harvest sent prices plummeting.

When all data are analyzed, Wisconsin net farm income for 2004 will be in the $1.8 billion to $2 billion range, which would exceed the previous record of $1.7 billion set in 1989. This follows a near-record 2003 net farm income of about $1.6 billion.

“Back-to-back good years have finally given Wisconsin farmers an opportunity to recover somewhat from a 12-year stretch during which net farm income averaged less than $1 billion,” the authors write.

Although the states” farmers have had more bad years than good over the past ten years, their net worth continues to grow, driven by steadily increasing farm land values, the report says.

For 2005 the economists predict “not a great year, but not a bad one,” with net farm income in the $1.2 billion to $1.5 billion range.

During 2004 dairy producers enjoyed a record high price for Class III milk – the milk used to make cheese – every month from March through June. In May that price reached $20.58, which was $6.75 above the previous record price for May. The average Class III price for the year will be up more than $1 from the previous record, set in 1999, according to the report.

Dairy markets heavily influence Wisconsin”s total farm earnings. Milk sales account for at least half of the state”s crop and livestock receipts.

In 2005 milk prices will likely decline somewhat, the economists say. They expect the 2005 average Wisconsin milk price to be about $2 below the 2004 price but more than $1 above the 1999-2003 average.

The higher milk prices have generated surplus cash flows for Wisconsin dairy farmers since late summer of 2003, says farm management specialist Bruce Jones. This is reflected in reports from the state”s farm lenders, who say that repayment rates for non-real-estate loans are up and requests for loan renewals and extensions are down.

“The reports of higher repayment rates and lower loan renewal rates are evidence that Wisconsin farmers are using much of this surplus cash to pay down loans or finance day-to-day operating costs,” Jones says.

Net returns have also brought Wisconsin farmers closer to parity with those of other states, Jones says. Wisconsin”s net farm income declined sharply in 1991 and remained relatively flat until 2003. During the same period, U.S. net farm income has generally trended upward.

The net worth of Wisconsin farmers – their assets minus their debts – has grown considerably over the past ten years, Jones adds. The value of farm assets increased about $20 billion from 1993 to 2003, while farm debt increased by $2 billion.

But the increase doesn”t reflect an accumulation of earnings from crop and livestock production. Rather, it reflects steadily increasing farm real estate values, driven in large part by purchases of farm land for non-farm uses.

The value of farm real estate rose 142 percent from 1993 to 2003. The value of non-real-estate assets rose 8.7 percent. The share of farm assets represented by real estate went from 57 percent to 75 percent.

The Status of Wisconsin Agriculture Report can be downloaded at no cost here.

Printed copies may be purchased for $5 by contacting Linda Davis, Department of Agricultural and Applied Economics, 427 Lorch St., Madison, WI 53706.