Outline for Presentation

An Overview of Wisconsin and US Agricultural Economy

Bruce L. JonesDirector, Renk Agribusiness Institute

August 2013

Outline for Presentation

• Wisconsin Ag Financial Status

• Diversification & Dairy Farm Performance

• Farm Bill Issues

• Ag Enterprise Performance

• USDA Long Term Outlook

• Farmland Values: Wisconsin and Neighboring States

Net Farm Income: U.S. and Wisconsin

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Source: Economic Research Service, USDA*2012 Wisconsin Income Estimated by Authors

Wisconsin Farm Balance Sheet, December 31, 2007-2011

2007 2008 2009 2010 2011

$Million

Current Assets 5,558 6,818 6,038 6,463 6,552

Noncurrent Assets 56,681 56,850 58,460 59,100 63,359

Total Farm Assets 62,239 63,668 64,497 65,563 69,911

Current Liabilities 1,712 1,624 1,836 1,815 1,820

Noncurrent Liabilities 5,818. 5,203 5,839. 6,565 7,256

Total Farm Liabilities 7,531 6,827 7,675 8,379 9,076

Farm Equity 54,708 56,841 56,823 57,184 60,835

Agricultural Credit Conditions: Seventh Federal Reserve District

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Loan Demand Index

Fund Availability Index

Loan Repayment Index

Source: Chicago Federal Reserave Bank, Agricultural Letter .See Source for explanation of how indices are constructed.

Interest Rates on Farm Loans: Seventh Federal Reserve District

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Operating Loans

Farm Real Estate Loans

Source: Chicago Federal Reserve Bank, Agricultural Letter

Dairy

U.S. Milk production: 2011 and preliminary 2012

2011 2012 Percent Change

United States:

Average number of milk cows (1,000)

9,194 9,235 +0.5%

Milk per cow (pounds) 21,346 21,640 +1.4%

Total milk production (Billion Lbs.)

196.245 199.8 +1.9%

Wisconsin

Average number of milk cows (1,000)

1,265 1,270 +.4%

Milk per cow (pounds) 20,645 21,383 +3.6%

Total milk production (Billion Lbs.)

26.1 27.2 +4.1%

2013 Milk Price Forecasts

Quarter

Jan-Mar Apr-Jun Jul-Sep Oct-Sep

Class III $18.40±0.10 $18.70±0.10 $18.90±0.15 $18.20±0.35

Class IV $18.65±0.30 $18.50±0.30 $18.00±0.15 $17.70±0.10

WI All Milk $19.95±0.10 $20.25±0.10 $20.40±0.10 $19.75±0.30

Livestock

Changes in Production and Prices for Livestock Products

Livestock Species/Product

Production in Million Pounds Price in Cents per Pound

20092012

Forecast% Change 2009

2012 Forecast

% Change

Choice Steers 25,963* 25,872* -0.4% 83.25 122.85 48%

Lambs 171 156 -8.8% 90.10 113.55 26%

Barrows and Gilts 22,993* 23,178* 0.8% 41.24 61.10 48%

Broilers 35,511 36,939 4.0% 77.60 86.8 12%

Turkey 5,663 5,981 5.6% 79.50 105.7 33%

Eggs** 6,485 5,981 3.0% 103.00 118.0 15%

*Total production of beef and pork**Volume in million dozen and price in cents/dozen. See source for pricing points.

Source: USDA, Livestock, Dairy and Poultry Outlook, December 2011 and December 2012.

Total U.S. Per Capita Meat Consumption

219.5

215.3

220.5218.9

221.6 221 221.3 221.6

216.1

210.5208.9

204.6

202.2

197.1

180

185

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230

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013**

Po

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Source: USDA, World Agricultural Supply and Demand Estimates*2012 is estimated. **2013 is forecast

Corn and Soybeans

U.S. Corn Balance Sheet (Sep-Aug)

Marketing Year 05/06 06/07 07/08 08/09 09/10 10/11 11/12* 12/13**

Million Bushels (Except as Noted)

Beg. Stocks 2,114 1,967 1,304 1,624 1,674 1,708 1,128 988

Imports 9 12 20 14 10 28 29 100

Acres Planted (Mil.) 81.5 78.3 93.5 86.0 86.5 88.2 91.9 96.9

Acres Harvested (Mil.) 75.1 70.6 86.5 78.6 79.6 81.4 84.0 87.7

% Harvested 92.1 90.2 92.5 91.4 92.0 92.2 91.4 90.5

Yield (Bu/A) 148 149.1 150.7 153.9 164.7 152.8 147.2 122.3

Production 11,114 10,535 13,038 12,101 13,110 12,447 12,358 10,728

Total Supply 13,237 12,514 14,362 13,739 14,792 14,262 13,515 11,806

Feed and Residual 6,155 5,595 5,913 5,254 5,159 4,792 4,547 4,150

Food/See/Industrial 2,981 3,490 4,387 4,953 5,938 6,428 6,437 5,867

Ethanol 1,603 2,119 3,049 3,677 4,568 5,021 5,011 4,500

Exports 2,134 2,125 2,437 1,858 1,987 1,835 1,543 1,150

Total Demand 11,270 11,210 12,737 12,065 13,084 13,054 12,527 11,167

Ending Stocks 1,967 1,304 1,624 1,674 1,708 1,128 988 647

Stocks to Use (%) 17.45 11.63 12.75 13.87 12.95 8.64 7.9 5.8

Average Farm Price ($/Bu.)

$2.00 $3.04 $4.20 $4.06 $3.55 $5.18 6.22$6.80 –

$8.00

* December Estimate ** December Forecast. Source: USDA, World Agricultural Supply and Demand Estimates.

U.S. Soybean Balance Sheet (Sep-Aug)

Marketing Year 05/06 06/07 07/08 08/09 09/10 10/11 11/12* 12/13**

Million Bushels (Except as Noted)

Beg. Stocks 256 449 574 205 138 151 215 169

Imports 3 9 10 13 15 14 16 20

Acres Planted (Mil.) 72.0 75.5 64.7 75.7 77.5 77.4 75.0 77.2

Acres Harvested (Mil.) 71.3 74.6 64.1 74.7 76.4 76.6 73.8 75.7

% Harvested 99.0 98.5 99.0 98.7 98.5 99.0 98.4 98.1

Yield (Bu/A) 43 42.7 41.7 39.7 44 43.5 41.9 39.3

Production 3,063 3,188 2,677 2,967 3,359 3,329 3,094 2,975

Total Supply 3,322 3,647 3,261 3,185 3,512 3,495 3,325 3,160

Crush Sep/Aug 1,739 1,808 1,803 1,662 1,752 1,648 1,703 1570

Exports 940 1,116 1,159 1,283 1,501 1,501 1,362 1345

F/S/R 194 149 93 101 108 130 91 115

Total Demand 2,873 3,073 3,056 3,047 3,361 3,280 3,156 3031

Ending Stocks 449 574 205 138 151 215 145 115

Stocks to Use (%) 15.62 18.28 6.71 4.53 7.01 6.55 5.4 4.3

Average Farm Price ($/Bu.) $5.66 $6.43 $10.10 $9.97 $9.59 $11.30 $12.50

$13.55-15.55

* December Estimate ** December Forecast. Source: USDA, World Agricultural Supply and Demand Estimates.

Diversification and Dairy Farm Performance

RES ULTS

Income/ExpenseTotalAdjDairyCropping

5,129,000-1,414,1035,038,0001,505,103Total Income

3,300,626-1,414,1024,061,478653,250Total Expenses

1,828,3740976,522851,853Net Income

35.65%19.38%56.60%Profit margin

Sample Dairy Operations

Hay price (PH) as a function of corn price (PC)

• PH = 70.39 + 15.73 PC

(6.65)

• R2 = .9046

Soybean price (PS) as a function of corn price (PC)

• PS = 1.6299 + 1.9126 PC

(14.18)

• R2 = .9306

Soybean Meal price (PSBM) as a function of soybean price (PS)

• PSBM = 36.7135 + 27.917 PS

(16.017)

• R2 = .9379

CroppingS BMCorn S ilageCornAlfalfa

400450650Acres Raised181803.7Crop Yield / Acre

455.9770.007180.5Market Price

808020S eed15015095Ferti lizer

35355Pesticide303020Other variable cost

12012080Labor / management

225Rent Charge Per Acre ($)800Owned Acres

Cropping Assumptions

Dairy

1000Cows22Milk Price

Per Cow Milk Yield and Feed Usage

22900Milk Sales

Feed (As Fed)3.3Alfalfa (T)85Corn (BU)

5.9Corn S ilage (T)

2420S BM (LBS)

Dairy Assumptions

Assumed Market Conditions

Milk ($/CWT)

Corn ($/Bu)3.00 5.00 7.00

16 0.1 0.1 0.1 0.319 0.1 0.2 0.1 0.422 0.1 0.1 0.1 0.3

0.3 0.4 0.3

Results

Dairy Crop/Dairy

Average 810,553 1,280,745

Min -397,478 454,374

Max 2,018,585 2,107,115

Std Dev 667,881 542,988

C.V 0.82 0.42

Farm Bill Issues

Likely 2013 Farm Bill

• Subsidized crop insurance – Voluntary

• Reduced protections for dairy• Dairy Security Act -- Senate• Dairy Freedom Act -- House

Dairy Security Act

• Dairy Producer Margin Protection Plan– Voluntary– “Guarantees” producers $4/CWT Income over

Feed Costs (IOFC) on 80% historic production– Producers can purchase higher IOFC protection– Administrative fee of up to $2500– Requires participation in Dairy Market

Stabilization Program – Supply Control

Dairy Freedom Act

• Voluntary

• Margin insurance program where payments of higher premiums can increase IOFC per CWT guarantee from $4 to as much as $8

Enterprise PerformanceUSDA-ERS ARMS

USDA-ERS Long Run Outlook

Farmland Values

(1 )

( )

gV R

r g

Land Valuation Model

V = Value of Land

R = Return From Land

g = Annual Growth in Return (R)

r = Opportunity Cost of Capital

Trend – Growth of 6.74 % per year

Trend – Growth of 5.14 % per year

Trend – Growth of 5.26 % per year

Trend – Growth of 2.83 % per year

Trend – Growth of 3.15 % per year

Trend – Growth of 3.87 % per year

Correlation: 0.43

Correlation: 0.72

Correlation: -0.21

Correlation: 0.77

Correlation: -0.33

Correlation: 0.84

Correlation: -0.9024

Correlation: -0.8616

Correlation: -0.8505

Grain Markets and Ethanol Production

US Gasoline Consumption

367 Million Gallons / Day --- 134 Billion Gallons / Year

Energy Information Administration

What’s in a bushel of corn?

Corn Dry Milling Process Overview

1 Bushel of 2.85 Gallons of 18 Pounds of 18 Pounds of Corn Ethanol DDGS CO2

Corn Demands To Meet Ethanol Blending Needs Associated With 134 Billion Gallons Of

Annual Gasoline Consumption

Blend rate (%) Corn needs (Billions of Bu.)

10 4.7

12.5 5.9

15 7.1

CORN 2010/11 2011/12 Est. 2012/13 Proj. 2012/13 Proj.    Jan Feb

  Million AcresArea Planted 88.2 91.9 97.2 97.2Area Harvested 81.4 84 87.4 87.4  BushelsYield per Harvested Acre 152.8 147.2 123.4 123.4  Million BushelsBeginning Stocks 1708 1128 989 989Production 12447 12360 10780 10780Imports 28 29 100 100 Supply, Total 14182 13516 11869 11869Feed and Residual 4795 4548 4450 4450Food, Seed & Industrial 2/

6426 6437 5867 5887 Ethanol & by-products 3/

5019 5011 4500 4500 Domestic, Total 11221 10985 10317 10337Exports 1834 1543 950 900 Use, Total 13055 12527 11267 11237Ending Stocks 1128 989 602 632 CCC Inventory 0 0 0 0 Free Stocks 1128 989 602 632 Outstanding Loans 48 41 50 50Avg. Farm Price ($/bu) 4/

5.18 6.22 6.80 - 8.00 6.75 - 7.65

US Balance Sheet For Corn