An Overview of Wisconsin and US Agricultural Economy Bruce L. Jones Director, 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

Wisconsin Farm Balance Sheet, December 31, $Million Current Assets5,5586,8186,0386,4636,552 Noncurrent Assets56,68156,85058,46059,10063,359 Total Farm Assets62,23963,66864,49765,56369,911 Current Liabilities1,7121,6241,8361,8151,820 Noncurrent Liabilities5,818.5,2035,839.6,5657,256 Total Farm Liabilities7,5316,8277,6758,3799,076 Farm Equity54,70856,84156,82357,18460,835

Dairy

U.S. Milk production: 2011 and preliminary Percent Change United States: Average number of milk cows (1,000) 9,1949, % Milk per cow (pounds)21,34621, % Total milk production (Billion Lbs.) % Wisconsin Average number of milk cows (1,000) 1,2651,270+.4% Milk per cow (pounds)20,64521, % Total milk production (Billion Lbs.) %

2013 Milk Price Forecasts Quarter Jan-MarApr-JunJul-SepOct-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 PoundsPrice in Cents per Pound Forecast % Change Forecast % Change Choice Steers 25,963*25,872* -0.4% % Lambs % % Barrows and Gilts 22,993*23,178* 0.8% % Broilers 35,51136, % % Turkey 5,6635, % % Eggs** 6,4855, % % *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.

Corn and Soybeans

U.S. Corn Balance Sheet (Sep-Aug) Marketing Year05/0606/0707/0808/0909/1010/1111/12*12/13** Million Bushels (Except as Noted) Beg. Stocks2,1141,9671,3041,6241,6741,708 1, Imports Acres Planted (Mil.) Acres Harvested (Mil.) % Harvested Yield (Bu/A) Production11,11410,53513,03812,10113,11012,447 12,358 10,728 Total Supply13,23712,51414,36213,73914,79214,26213,515 11,806 Feed and Residual6,1555,5955,9135,2545,1594,792 4,547 4,150 Food/See/Industrial2,9813,4904,3874,9535,9386,428 6,437 5,867 Ethanol1,6032,1193,0493,6774,5685,021 5,011 4,500 Exports2,1342,1252,4371,8581,9871,835 1,543 1,150 Total Demand11,27011,21012,73712,06513,08413,054 12,527 11,167 Ending Stocks1,9671,3041,6241,6741,7081, Stocks to Use (%) Average Farm Price ($/Bu.) $2.00$3.04$4.20$4.06$3.55$ $6.80 – $8.00 * December Estimate ** December Forecast. Source: USDA, World Agricultural Supply and Demand Estimates.

U.S. Soybean Balance Sheet (Sep-Aug) Marketing Year05/0606/0707/0808/0909/1010/1111/12*12/13** Million Bushels (Except as Noted) Beg. Stocks Imports Acres Planted (Mil.) Acres Harvested (Mil.) % Harvested Yield (Bu/A) Production3,0633,1882,6772,9673,3593,329 3,0942,975 Total Supply3,3223,6473,2613,1853,5123,495 3,3253,160 Crush Sep/Aug1,7391,8081,8031,6621,7521,648 1, Exports9401,1161,1591,2831,501 1, F/S/R Total Demand2,8733,0733,0563,0473,3613,280 3, Ending Stocks Stocks to Use (%) Average Farm Price ($/Bu.) $5.66$6.43$10.10$9.97$9.59$11.30$12.50 $ * December Estimate ** December Forecast. Source: USDA, World Agricultural Supply and Demand Estimates.

Diversification and Dairy Farm Performance

Sample Dairy Operations

Hay price (P H ) as a function of corn price (P C ) P H = P C (6.65) R 2 =.9046

Soybean price (P S ) as a function of corn price (P C ) P S = P C (14.18) R 2 =.9306

Soybean Meal price (P SBM ) as a function of soybean price (P S ) P SBM = P S (16.017) R 2 =.9379

Cropping Assumptions

Dairy Assumptions

Assumed Market Conditions Milk ($/CWT) Corn ($/Bu)

Results DairyCrop/Dairy Average810,5531,280,745 Min-397,478454,374 Max2,018,5852,107,115 Std Dev667,881542,988 C.V

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 Performance USDA-ERS ARMS

USDA-ERS Long Run Outlook

Farmland Values

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:

Correlation:

Correlation:

Grain Markets and Ethanol Production

US Gasoline Consumption 367 Million Gallons / Day Billion Gallons / Year Energy Information Administration

What’s in a bushel of corn? Corn Dry Milling Process Overview 1 Bushel of2.85 Gallons of18 Pounds of18 Pounds of Corn Ethanol DDGS CO 2

Corn Demands To Meet Ethanol Blending Needs Associated With 134 Billion Gallons Of Annual Gasoline Consumption Blend rate (%)Corn needs (Billions of Bu.)

CORN 2010/112011/12 Est.2012/13 Proj. JanFeb Million Acres Area Planted Area Harvested Bushels Yield per Harvested Acre Million Bushels Beginning Stocks Production Imports Supply, Total Feed and Residual Food, Seed & Industrial 2/ Ethanol & by-products 3/ Domestic, Total Exports Use, Total Ending Stocks CCC Inventory 0000 Free Stocks Outstanding Loans Avg. Farm Price ($/bu) 4/ US Balance Sheet For Corn