News Column

Cash Crops Spur Record Earnings

Feb 4, 2013

Rob Schultz

corn

Despite a devastating drought, the cash crops business boosted the collective bottom line for Wisconsin farmers in 2012 and remains an economic juggernaut closing in on the dairy industry as the state's top agricultural earnings producer.

This double-barreled approach of dairy production and cash crops led to the state's third straight year of strong earnings last year.

"Our diversity stabilizes farm income for Wisconsin," said UW-Madison agricultural economics professor Bruce Jones. "It's why we didn't take the full brunt of the drought."

Last year, strong prices for corn and other commodities and crop insurance payments offset lower production from withered crops and helped Wisconsin's gross farm income grow $100 million to a record $13.1 billion, according to a recent status report of Wisconsin agriculture by UW-Madison researchers.

The drought dramatically limited crops -- corn production fell 22 percent from 2011, and the yield was the lowest since 1996 -- and helped raise overall costs, especially the price that dairy farmers paid for feed.

But since Wisconsin farmers grow so much of their own feed, they weren't squeezed by the prices as much as farmers in other top dairy states such as California.

Thus, Wisconsin farmers still netted an estimated $3 billion in 2012, which is second only to the record $3.8 billion of profit in 2011 and $1 billion more than 2010, the report said.

Meanwhile, state milk production bested 2011's record levels by 1 billion pounds due to a 3.6 percent increase in milk per cow, the largest increase since 2005. But lower prices kept income from increasing, the report said.

So the dairy industry's share of the state agricultural revenue pie will stay at 45 percent, just 8 percentage points higher than the cash crop business. That led the report's authors to note that Wisconsin still has the right to call itself "America's Dairyland," but part of the state has joined the Corn Belt.

Corn Acreage Up 20 Percent

Wisconsin acres used for corn production has grown by more than 20 percent over the past 10 years, according to the National Agricultural Statistics Service.

Much of that has come at the cost of the livestock industry, a former economic powerhouse that has seen its share of state agricultural revenue drop to 19 percent over the past two years, according to the UW report.

Over the last few decades, as more state slaughterhouses closed, feed prices increased and new generations of farmers showed no interest in maintaining long-time family livestock operations, leading to acres that were used for cattle grazing being planted with crops.

The payoff was steadily increasing revenues with the help of strong exports late in the 20th century and then a revenue explosion in the mid-2000s with the help of ethanol mandates and biofuel production.

"The people who were raising livestock haven't necessarily left the industry. Those acres just don't leave," said Jones, who helped write the UW report. "It may be that it's not the same family farming those acres, but those acres get farmed and crops are produced and they are sold for cash as a grain crop or they go into the feed supply of the dairies, too."

Nobody understands that situation better than Waukesha County farmer Randy Craig.

He and his son, Daniel, had about 450 steers and 1,200 hogs but got out of the livestock business in 2005 and now plant 900 acres of corn and soybeans and 150 acres of hay.

They committed to cash cropping, going from being pinched by rising grain prices to benefiting from them.

"Since 2010, we've had three pretty good years here. It's been more profitable recently," Craig said. "My son says, 'Why go push something that's not making any money?' The price of feed is high. It makes a difference."

Debt Loads Decrease

Jones said the three strong earnings years have put many of the state's farmers in good financial position because they have used profits to retire debt and salt away reserves.

"Take a look at the debt loads of the industry -- it's very low," Jones said. "It says that we've got serious considerable financial reserves to withstand a bad year."

The future of the Wisconsin agricultural economy looks strong, too, although the threat of a continued drought in 2013 is a serious wild card.

Madison had above normal precipitation levels in December and January but drought conditions persist.

"We're still behind," said professor Jonathan Martin, chairman of atmospheric and oceanic sciences at UW-Madison.

An added positive factor is the United States' strong position as an exporter. As the rate of production worldwide continues to decrease, American agricultural products are poised to take a bigger share in growing markets like India and other Asian countries.

"Thanks to those factors, that's why we've seen pretty good performance on the part of the farm sector," Jones said. "On top of that, interest rates are low. Even if I'm going out and financing equipment or land, I'm not paying much for borrowed money. So that makes it easier to capitalize my farm operation as well."

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Distributed by MCT Information Services


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Source: (c) 2013 The Wisconsin State Journal (Madison, Wis.)


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