Status of the Wisconsin Farm Economy,
2015
Bruce L. Jones
Director, Renk Agribusiness Institute
College of Agricultural and Life Sciences
UW-Madison
(608)265-8508
Farm Income and Expenses
Wisconsin
2012
2013
2014 Est
Million $ Million $ Million $
Value of agricultural sector production
Production Expenses
13,603.24 14,121.66 15,007.04
7,153.17 7,422.58 7,673.76
Gross value added
Capital consumption
Net value added
6,450.07
1,036.52
5,413.55
6,699.08
1,147.65
5,551.43
7,333.28
1,152.04
6,181.24
924.57
249.55
673.97
924.72
211.93
691.35
978.35
233.53
708.69
3,565.46
3,723.43
4,260.68
Hired labor and employee compensation
Net rent received by nonoperator landlords
Total interest expenses
Net farm income
United States
2013
Million $
Change
2014F
Million $
Wisconsin
2013
2014 Est
Million $ Million $
Change
Value of crop production
233,628.95 200,600.85 -33,028.09
4,264.96
3,750.00
-514.96
Value of livestock production
182,114.77 206,552.30 24,437.53
8,050.02
9,587.49
1,537.47
5,541.49
1,717.72
6,775.00
1,996.22
1,233.51
278.50
1,806.68
1,669.55
-137.13
14,121.66 15,007.04
885.38
Dairy products, Milk
Meat animals
40,276.93 49,685.17
92,087.09 107,017.55
Revenues from services and forestry
54,247.16
49,555.64
-4,691.52
Value of agricultural sector production
469,990.88 456,708.79 -13,282.09
Purchased inputs
244,083.79 257,791.78 13,707.98
Payments to stakeholders
Hired labor and employee compensation
Net rent received by nonoperator landlords
Total interest expenses 1/
Net farm income
62,835.97
27,742.00
17,695.28
17,398.69
128,988.14
7,228.67
7,461.80
233.13
1,609.11
1,803.78
436.19
1,828.00
924.72
211.93
691.35
1,920.57
978.35
233.53
708.69
53.64
21.60
17.33
97,316.34 -31,671.81
3,723.43
4,260.68
537.25
66,685.05
29,351.10
19,499.06
17,834.88
@ 25% decrease
@ 15% increase
28.39%
26.37%
26.21%
27.27%
19.97%
27.44%
23.61%
27.35%
21.48%
21.31%
Variation In Wisconsin Net Farm Income
Period
2008 - 2009
2014 – 2015
(Forecast)*
Change in Net Farm Income
Billion $
Percent
-1.3
-1.9
@ -70%
@ -45%
* Assumes $7/CWT drop in milk price for 2015, all other factors at 2014 levels
Farm Balance Sheets
2011
Million $
817.90
2,805.22
435.98
77.08
67.99
2,347.61
6,551.78
2012
Million $
829.79
2,829.66
592.26
103.93
75.18
3,892.10
8,322.93
2013
Million $
916.35
2,143.94
514.36
75.11
74.27
2,325.56
6,049.51
361.21
7,364.91
3,103.22
52,530.01
63,359.35
354.24
8,790.67
3,020.15
51,906.54
64,071.52
401.36
8,544.20
3,166.52
55,725.21
67,837.36
69,911.13
72,394.46
73,886.87
Liabilities: Notes payable within one year
Liabilities: Current portion of term debt
Liabilities: Accrued interest
Liabilities: Accounts payable
Liabilities: Current
499.43
886.59
259.26
174.64
1,819.92
1,027.19
826.65
259.73
260.50
2,374.07
995.99
872.93
269.22
241.51
2,379.66
Liabilities: Nonreal estate
Liabilities: Real estate
Liabilities: Noncurrent
1,191.90
6,063.91
7,255.80
1,098.18
5,705.67
6,803.92
1,186.83
5,917.87
7,104.69
Farm liabilities
9,075.72
9,177.92
9,484.35
Farm equity
60,835.41
63,216.53
64,402.52
8,356.61
8,667.47
8,199.03
Wisconsin ARMS Balance Sheet
All Farms: TOTAL
Assets: Livestock inventory
Assets: Crop inventory
Assets: Purchased inputs
Assets: Cash invested in growing crops
Assets: Prepaid insurance
Assets: Other
Assets: Current
Assets: Investment in cooperatives
Assets: Farm equipment
Assets: Breeding animals
Assets: Land and buildings
Assets: Non-current
Farm assets
Assets: Operators dwelling
D/A =12.8
13.0
12.7
12.8
11.0
D/A =12.1
11.9
10.7
Distribution of Farms, Farm Income,
and Wealth For Wisconsin
Source: ERS-USDA ARMS
Source: ERS-USDA ARMS
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) 890-3755
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
World Agricultural Supply and Demand Estimates
World Agricultural Outlook Board
World Agricultural Supply and Demand Estimates
World Agricultural Outlook Board
World Agricultural Supply and Demand Estimates
World Agricultural Outlook Board
World Agricultural Supply and Demand Estimates
World Agricultural Outlook Board
World Agricultural Supply and Demand Estimates
World Agricultural Outlook Board
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)265-8508
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
http://extension.agron.iastate.edu/soilfertility/nrate.aspx
$6 to $5: -5.26%
$6 to $4: -7.02%
$6 to $3: -12.28%
Dairy and Cropping Benchmarks
Farmland Values
Annual Growth in Farmland Values
Wisconsin Minnesota
1950-1999
Illinois
Iowa
5.95
5.62
5.44
4.96
1974-1980
17.74
21.05
21.47
20.76
1980-1989
-6.08
-11.10
-8.82
-13.22
6.80
9.46
8.55
12.35
2000-2014
Supply and Ownership of Midwest Farmland
Determinants of Farmland Values
Land Valuation Model
(1  g )
V R
(r  g )
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
Period
Illinois
Iowa
Minn
Wisc
1970-1999
2.44
2.69
3.50
3.84
2000-2013
10.02
10.06
9.34
6.33
Annual Growth in Net Farm Income
Period
Illinois
Iowa
Minn
Wisc
1970-1999
1.75
3.05
0.28
1.24
2000-2013
15.71
13.24
17.66
6.19
Annual Growth in Cash Rents
Period
Wisconsin
Minnesota
Illinois
Iowa
1967 - 1973
4.85
2.77
2.92
5.39
1974 - 1981
9.59
10.84
11.10
9.67
1982 - 1987
-5.17
-8.26
-6.08
-8.12
1988 - 2005
2.58
2.57
1.94
1.90
2006 - 2014
8.57
10.04
7.44
8.75
Land Valuation Model
(1  g )
V R
(r  g )
V = Value of Land
R = Return From Land
g = Annual Growth in Return (R)
r = Opportunity Cost of Capital
Current interest
rates
Interest rates in
early 1980s
Farmland Affordability:
Purchasing and Leasing
Cash Rent Equivalent
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) * USPVr,Y (After-tax)
Rent Equivalent * (1-t) = PV Purchase Cost / USPVr,Y
Rent Equivalent For Farmland Purchase
Bruce L. Jones, Director
Renk Agribusiness Institute
UW-Madison CALS
June 2015
Taxes
Ordinary Income
Capital gains
Years to hold
Opportunity Cost of Capital (%)
Current Market Value of Land
Expected Annual Growth in Land Value
Mortgage Life Years
Loan Rate (%)
Percent Down
Rent per Acre (Before tax)
Rent per Acre (After tax)
Mortgage Payment
28
15
5
7
5000
2
30
6
20
234.11
168.56
290.60
Cash Rent Equivalents
Down-Payment Percentage
Expected Annual
Percent Growth
in Land Value
-2
0
10
20
30
40
403.27
421.42
439.56
457.71
475.86
0
304.65
322.80
340.94
359.09
377.24
2
197.82
215.97
234.11
252.26
270.40
Potential Investor Interest in Farmland
1970 -2014
Inflation
10-year T. Bond
S&P 500
Farmland
Minnesota
Wisconsin
Illinois
Iowa
Mean
Std Dev
Coef Var
4.27
7.90
11.84
2.88
9.63
17.02
0.68
1.22
1.44
14.58
12.60
11.74
9.25
0.81
0.73
12.79
15.36
10.79
12.76
0.84
0.83
Simple Correlation
1970 - 2014
Inflation
10-year
T. Bond
S&P
500
Minn
Wisc
Illinois
Iowa
Inflation
1.0000
10-year T. Bond
-0.0627 1.0000
S&P 500
-0.1192 -0.0232 1.0000
Minnesota
0.5537 -0.2701 -0.1389 1.0000
Wisconsin
0.5685 -0.2416 -0.2881 0.7845 1.0000
Illinois
0.3865 -0.2883 -0.2142 0.8668 0.6792 1.0000
Iowa
0.3879 -0.2491 -0.1710 0.9043 0.6592 0.9348 1.0000
1970-1995
1989-2014
Mean
Std Dev
Coef Var
Mean
Std Dev
Coef Var
Inflation
5.67
3.01
0.53
2.71
1.13
0.42
10-year T. Bond
9.31
10.00
1.07
7.36
9.21
1.25
S&P 500
12.99
15.79
1.22
11.91
17.80
1.49
Minnesota
14.78
14.81
1.00
13.73
4.88
0.36
Wisconsin
13.45
10.83
0.81
10.85
5.84
0.54
Illinois
12.96
13.19
1.02
12.48
5.54
0.44
Iowa
14.86
15.76
1.06
15.58
6.35
0.41
Farmland
Simple Correlation
1970 - 1995
Inflation
10-year
T. Bond
S&P
500
Minn
Wisc
Illinois
Inflation
1.00
10-year T. Bond
-0.35
1.00
S&P 500
-0.16
0.40
1.00
Minnesota
0.67
-0.38
-0.20
1.00
Wisconsin
0.64
-0.45
-0.31
0.86
1.00
Illinois
0.46
-0.42
-0.30
0.89
0.80
1.00
Iowa
0.51
-0.40
-0.22
0.94
0.81
0.95
Iowa
1.00
Simple Correlation
1989 - 2014
Inflation
10-year S&P
T. Bond 500
Minn
Wisc
Illinois
Inflation
1.00
10-year T. Bond
0.44
1.00
S&P 500
-0.23
-0.22
1.00
Minnesota
0.41
0.10
0.00
1.00
Wisconsin
0.17
0.17
-0.20
0.32
1.00
Illinois
0.29
0.08
0.00
0.60
0.09
1.00
Iowa
0.28
0.24
0.01
0.58
-0.03
0.81
Iowa
1.00
Capital Asset Pricing Model
Risk / Return Trade-off
Capital Asset Pricing Model
RA Under-performing Asset
Capital Asset Pricing Model
RA Over-performing Asset
Capital Asset Pricing Model For US Farm Real
Estate
Variable
Intercept (Alpha)
Market (Beta)
Barry
(AJAE 1980)
1950 - 77
4.78
(t=2.53)
0.19
(1.70)
Inflation
R2
0.26
Irwin, Forster, Sherrick
(AJAE 1988)
1950 - 77
1947 - 84
7.80
4.40
(4.25)
(1.73)
0.15
(0.78)
0.25
(1.49)
0.60
(0.96)
0.86
(2.37)
0.28
0.55
Capital Asset Pricing Model For Midwestern Farmland
Market Risk
Excess Inflation
R2
Premium
(Beta)
Wisconsin
11.12
-0.05
2.00
0.44
(t = 5.61)
(-1.05)
(4.02)
Minnesota
16.21
-0.004
3.36
0.58
(7.50)
(-0.07)
(5.81)
Illinois
13.56
-0.06
2.95
0.48
(6.09)
(-0.85)
(4.84)
Iowa
18.12
-0.02
3.82
0.58
(7.19)
(-0.28)
(5.65)
For 1968 – 2014 period, using S&P 500 as measure of market return and 10
year Treasury Bond as risk free rate
State
Intercept
(Alpha)
Where Are We Headed?