Status of the Wisconsin Farm Economy, 2015 Bruce L. Jones Director, Renk Agribusiness Institute College of Agricultural and Life Sciences UW-Madison (608)

Farm Income and Expenses

Wisconsin Est Million $ Value of agricultural sector production13, , , Production Expenses7, , , Gross value added6, , , Capital consumption1, , , Net value added5, , , Hired labor and employee compensation Net rent received by nonoperator landlords Total interest expenses Net farm income3, , ,260.68

United StatesChangeWisconsinChange F Est Million $ Value of crop production233, , , , , Value of livestock production182, , , , , , Dairy products, Milk40, , , , , Meat animals92, , , , Revenues from services and forestry54, , , , , Value of agricultural sector production469, , , , , Purchased inputs244, , , , , Payments to stakeholders62, , , , Hired labor and employee compensation27, , , Net rent received by nonoperator landlords17, , , Total interest expenses 1/17, , Net farm 25% 15% increase

19.97% 28.39% 26.37% 26.21% 27.27%

21.48% 23.61% 27.44% 21.31% 27.35%

Variation In Wisconsin Net Farm Income PeriodChange in Net Farm Income Billion $Percent % 2014 – 2015 (Forecast)* -45% * Assumes $7/CWT drop in milk price for 2015, all other factors at 2014 levels

Farm Balance Sheets

Wisconsin ARMS Balance Sheet All Farms: TOTALMillion $ Assets: Livestock inventory Assets: Crop inventory 2, , , Assets: Purchased inputs Assets: Cash invested in growing crops Assets: Prepaid insurance Assets: Other 2, , , Assets: Current 6, , , Assets: Investment in cooperatives Assets: Farm equipment 7, , , Assets: Breeding animals 3, , , Assets: Land and buildings 52, , , Assets: Non-current 63, , , Farm assets 69, , , Liabilities: Notes payable within one year , Liabilities: Current portion of term debt Liabilities: Accrued interest Liabilities: Accounts payable Liabilities: Current 1, , , Liabilities: Nonreal estate 1, , , Liabilities: Real estate 6, , , Liabilities: Noncurrent 7, , , Farm liabilities 9, , , Farm equity 60, , , Assets: Operators dwelling 8, , ,199.03

D/A =

D/A =

Distribution of Farms, Farm Income, and Wealth For Wisconsin

Source: ERS-USDA ARMS

Dairy Situation and Outlook, 2015 Mark Stephenson Director of Dairy Policy Analysis College of Agricultural and Life Sciences UW-Madison (608)

U.S. All Milk Price

MPP Ration Cost

Strong Profits Encourage Output

Farms Retained Cows

Number of Cows

Milk per Cow

World Agricultural Supply and Demand Estimates World Agricultural Outlook Board

Grain and Livestock Situation and Outlook

World Agricultural Supply and Demand Estimates World Agricultural Outlook Board

Farm Production Costs Bruce L. Jones Director, Renk Agribusiness Institute College of Agricultural and Life Sciences UW-Madison (608)

Short-Term Energy Outlook Forecast

Corn Nitrogen Rate Calculator Finding the Maximum Return To N and Most Profitable N Rate A Regional (Corn Belt) Approach to Nitrogen Rate Guidelines $6 to $5: -5.26% $6 to $4: -7.02% $6 to $3: %

Dairy and Cropping Benchmarks

Farmland Values

Annual Growth in Farmland Values WisconsinMinnesotaIllinoisIowa

Supply and Ownership of Midwest Farmland

Determinants of Farmland Values

Land Valuation Model V = Value of Land R = Return From Land g = Annual Growth in Return (R) r = Opportunity Cost of Capital

Annual Growth in Gross Farm Income PeriodIllinoisIowaMinnWisc

Annual Growth in Net Farm Income PeriodIllinoisIowaMinnWisc

Annual Growth in Cash Rents PeriodWisconsinMinnesotaIllinoisIowa

Land Valuation Model V = Value of Land R = Return From Land g = Annual Growth in Return (R) r = Opportunity Cost of Capital

Interest rates in early 1980s Current interest rates

Farmland Affordability: Purchasing and Leasing

Present Value (PV) Purchase Cost = PV Rents PV Purchase Cost a) Down-payment b) PV P&I mortgage payments (After-tax) c) Less: PV Net Sale (Sale – Loan Balance) (After-tax) PV Rents Rent * (1-t) * USPV r,Y (After-tax) Rent Equivalent * (1-t) = PV Purchase Cost / USPV r,Y Cash Rent Equivalent

Cash Rent Equivalents Down-Payment Percentage Expected Annual Percent Growth in Land Value

Potential Investor Interest in Farmland

MeanStd DevCoef Var Inflation year T. Bond S&P Farmland Minnesota Wisconsin Illinois Iowa

Simple Correlation Inflation 10-year T. Bond S&P 500 MinnWiscIllinoisIowa Inflation year T. Bond S&P Minnesota Wisconsin Illinois Iowa

MeanStd DevCoef VarMeanStd DevCoef Var Inflation year T. Bond S&P Farmland Minnesota Wisconsin Illinois Iowa

Simple Correlation Inflation 10-year T. Bond S&P 500 MinnWiscIllinoisIowa Inflation year T. Bond S&P Minnesota Wisconsin Illinois Iowa

Simple Correlation Inflation 10-year T. Bond S&P 500 MinnWiscIllinoisIowa Inflation year T. Bond S&P Minnesota Wisconsin Illinois Iowa

Capital Asset Pricing Model Risk / Return Trade-off

Capital Asset Pricing Model R A Under-performing Asset

Capital Asset Pricing Model R A Over-performing Asset

Capital Asset Pricing Model For US Farm Real Estate Variable Barry (AJAE 1980) Irwin, Forster, Sherrick (AJAE 1988) Intercept (Alpha) 4.78 (t=2.53) 7.80 (4.25) 4.40 (1.73) Market (Beta) 0.19 (1.70) 0.15 (0.78) 0.25 (1.49) Inflation 0.60 (0.96) 0.86 (2.37) R2R

Capital Asset Pricing Model For Midwestern Farmland State Intercept (Alpha) Market Risk Premium (Beta) Excess InflationR2R2 Wisconsin (t = 5.61) (-1.05) 2.00 (4.02) 0.44 Minnesota (7.50) (-0.07) 3.36 (5.81) 0.58 Illinois (6.09) (-0.85) 2.95 (4.84) 0.48 Iowa (7.19) (-0.28) 3.82 (5.65) 0.58 For 1968 – 2014 period, using S&P 500 as measure of market return and 10 year Treasury Bond as risk free rate

Where Are We Headed?