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Wisconsin Agriculture Economic Update

Certainly, no one could have predicted how 2020 would unfold when the calendar turned last January. The COVID-19 virus has infected every aspect of our lives. In addition to being a serious health threat to some individuals, it had negative ramifications on American society and the economy at large. In the agriculture world, we saw a volatile market become even more unstable as investors scrambled to protect themselves. Food processing plants reduced their output due to restrictions on how many employees could work in close proximity as well as a record number of employees who were required to quarantine. This caused a backup in the food chain process. Shuttered slaughterhouses and meat packing plants running below capacity left some farmers in the lurch when their livestock were finished but had no place for processing. The dairy markets plunged temporarily creating a panic. Some co-ops and milk brokers struggled to find markets for their contracted milk leaving a few Wisconsin dairy farmers with nowhere to ship their milk. The crushing economic destruction to the commodity markets resulting from the coronavirus pandemic devastated the labor force, threatened food supply chains and created panic buying from retailers and consumers.

In spite of the chaos in the industry during the spring and early summer months, Wisconsin farmers still planted their crops and cared for their livestock…in short, they were still farming. A phrase that lead to a social media campaign to reassure consumers that food would continue to be on the grocery store shelves. We scrambled for a few months to adjust to what the markets were doing, but the good news is that the grain and milk markets have righted themselves somewhat. While farmers were working with these unstable markets, the U.S. Department of Agriculture stepped up and provided a financial foundation directly to many farmers and ranchers through the Coronavirus Financial Assistance Program. Under the advisement of the Secretary of Agriculture, the Administration provided $16 billion for direct aid payments for loss to farmers in the summer. This was followed by an additional $14 billion from USDA in a second round of CFAP payments for farmers who continued to face market disruptions and associated costs due to COVID-19. Much of this program was distributed to assist stabilizing the dairy and livestock industries.

As the harvest set in, Wisconsin yields proved stellar. The weather for this growing season in our state was excellent. Farmers in other states struggled with situations out of their control such as the derecho in Iowa and drought in the Southwest. Never-the-less, net farm income for 2020 is looking to be the second highest on record, second only to 2013 according to Total Farm Marketing. The markets are demand-driven and that is strengthening the price. Exports are strong as China begins to build back its pork industry by increasing their contracts for corn and soybeans. Grain stores are tightening which encourages an increase in price. The USDA January 2021 report will help define how much the markets may have tightened due to overall crop volume. South America’s upcoming harvest will also be a determining price driver on the world market.

The dairy industry is realizing stronger demand in cheese, not-fat dry milk and whey. This is due in part to increased exports. While butter is expected to stay stagnant, which may hold back Class IV milk, Class III sales is forecasted to remain strong.

In summary, there are a number of reasons why many of us want to move on from 2020. But many Wisconsin farmers will look back at 2020 as a fair-to-good financial year. This is attributed primarily to 1) strong federal support programs, 2) a record harvest and 3) an increase in exports which brought about a quicker recovery of commodity prices. This should help many farmers start 2021 in a better financial position than we might have thought six months ago. One thing is for certain: the markets are not settled and remain unstable. This is a good time for farmers and their lenders to be considering risk management strategies for the next season. There are so many variables that farmers cannot control but protecting a floor and keeping the upside opportunity open will help them sleep better at night.

WFBF is the state’s largest general farm organization, representing farms of all sizes, commodities, and management styles. There are nearly 47,000 members that belong to the Wisconsin Farm Bureau. Voting Farm Bureau members (farmers) annually set the policy the organization follows, and are involved in local, state and national affairs, making it a true grassroots organization.

By, Alex Paniagua