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Diving Milk Prices Cut State’s Net Farm Income By More Than Half

Times were hard for farmers across the country in 2009, but they were harder than average for Wisconsin farmers.

While total net farm income dropped by a third nationwide, in Wisconsin it plummeted by 56 percent to $1.1 billion, its lowest level since 2002, according to estimates by University of Wisconsin-Madison agricultural economists.

Wisconsin”s farm sector took a bigger hit because the price of milk – the state”s single largest source of cash farm receipts – dropped more precipitously than prices received for other commodities, the economists say in their 2010 “Status of Wisconsin Agriculture” report.

“For dairy farmers, the year began with a bang – the sound of milk prices hitting the floor,” the report notes.

The economists calculate that 2009 receipts for Wisconsin farm commodities were down $1.8 billion from 2008, and that nearly 80 percent of that decline represents a fall in milk prices. Another 15 percent was from reduced crop receipts, mainly from lower corn prices.

The Wisconsin all-milk price averaged around $13 for the year, down from a record $19.27 in 2007. The drop was largely because export markets dried up, leaving more milk to be absorbed by domestic markets that were already crimped by the recession.

The report”s authors calculate that Wisconsin dairy farmers” aggregated net worth decreased by an estimated $1.8 billion. Two-thirds of that came from a drop in the value of cows and heifers. Another 20 percent was because of a drop in the value of farm real estate, while the rest represents negative cash flow.

Dairy farm indebtedness increased. The aggregate dairy farm debt-to-equity ratio rose from .15 to .18. In other words, on average, Wisconsin milk producers owe 18 cents per dollar of assets they own, up from 15 cents in 2008.

“This indicates the weakened position of the Wisconsin dairy industry. Nonetheless, a debt-to-asset position of position of less than .20 still represents a sound financial position overall, despite some serious problems on the individual farm level,” according to the report.

As difficult as things were for Wisconsin”s milk producers, the economists note that they fared considerably better than their counterparts out west, where milk prices were lower and feed costs were higher. While poor returns spurred California producers to cut the state”s cow numbers by 4.3 percent between January and November of 2009, Wisconsin”s cow herd grew about 0.3 percent. California produced 3.8 percent less milk in the first 11 months of 2009 than in the same period in 2008, while Wisconsin produced about 3 percent more.

The report suggests that dairy farmers will fare much better in 2010, as the nation”s cow herd continues to shrink and domestic consumption and exports of dairy products strengthen. The report”s authors expect a Wisconsin all-milk price of around $17.50, up by $4.50 from 2009.

The “Status of Wisconsin Agriculture” report is available online at http://www.aae.wisc.edu/pubs/status.