Farmers struggling as markets overflow with milk, grain, livestock

WATERTOWN, Wis. – Carrie Mess, like most dairy farmers, is losing money every time the cows are milked on her farm near this southeastern Wisconsin city.

As farmers gear up for spring planting, those who sell crops on the commodities markets stand to lose buckets of money from low prices that are beyond their control.

Simply put, what many farmers are paid for milk, grain or livestock now isn’t enough to cover their expenses. They’re taking out loans and tapping savings to remain in business, going to work every day knowing that it’s costing them money.

The Mess family farm milks about 100 cows and raises 300 acres of crops.

Even farmers born into the business are a little nervous about the downturn, according to Mess.

“We don’t know when this will turn around,” she said.

U.S. net farm income is expected to drop to $54.8 billion this year, the lowest since 2002 and less than half the record of $123.3 billion in 2012, according to the U.S. Department of Agriculture.

While the outlook for grain farmers has improved some in recent months, the global marketplace is still awash in corn and soybeans – much of it left over from a bountiful harvest last fall.

Meanwhile, U.S. farmers plan to sow 93.6 million acres of corn this year, exceeding all analyst estimates and boosting prospects for higher supplies that could further depress prices.

Growers hope that better-than-normal yields will help them at least break even.

“We are swimming in corn, soybeans . all of these commodities, and the U.S. dollar is so strong that nobody (overseas) can afford them,” said Ross Bishop, a beef cattle and crops farmer in nearby Washington County.

A drought or a flood that wipes out thousands of acres of U.S. crops could reduce the harvest and boost prices. Likewise, poor weather in South America or another part of the world might help.

“It’s sad because you have to hope for a disaster somewhere,” Bishop said.

Wisconsin livestock farmers benefit from lower corn and soybean prices because much of the crop that’s raised here goes for feeding dairy and beef cattle.

Still, livestock farmers have felt the downturn. Last year, Bishop said, he lost $411 for every beef cow that he sold.

“You would have to go back to the 1980s to see anything like this,” he said, although it was worse then because of high-interest loans.

“You basically paid the interest, and that’s all you were doing,” Bishop said.

The beating that farmers take from low market prices, which often stems from an oversupply of milk, grain and livestock, begs the question: Why don’t they respond by slashing production?

It’s not that easy, said Harwood Schaffer, an agricultural economist at the University of Tennessee in Knoxville.

Every spring, crop farmers face a dilemma.

Crop yields and profits are unknowns at planting time, yet decisions have to be made while the weather, hopefully, cooperates.

Some of the choices, such as what seed to buy and how much land to rent, are locked-in the previous year. But crops can’t be planted early, to take advantage of better prices, or later to see if prices improve.

“While farmers only have one time to make the decision that has the most impact on production – to plant or not to plant – other industries have many more opportunities during the year to adjust the production and inventory they have for sale,” Schaffer said.

Dairy farmers face tough decisions when milk prices are low because producing more milk lowers their cost of production, on a per-unit basis, but it adds to the oversupply problem.

They seek operating efficiencies to squeeze out a profit, or lose less money, rather than reducing the number of cows they milk.

“The No. 1 rule in the dairy industry is you never cut back, especially in a down period,” said Gordon Speirs, a dairy farmer.

Speirs’ farm milks 2,100 cows. In a year like this, when the farm milk price has fallen below a profitable level, he’s reduced spending for anything that’s not essential.

“It’s going to be a skinny year. We aren’t going to be buying new tractors or upgrading equipment,” Speirs said.

In 2015, the number of Wisconsin dairy farms fell below 10,000 for the first time in more than a century, down about 33 percent from 2005. Yet milk production increased, largely from bigger farms with hundreds or thousands of cows.

Some farmers will be forced out of business by the current low prices, but those that can weather the downturn stand to make a nice profit when the markets eventually rebound.

“In agriculture, you make your money on the margins. It’s pennies here and there,” said Andy Herro, a dairy farmer.

Many farmers are fortunate to have paid down debt during recent profitable years.

Even if they’re not making money now, at least they can cover their out-of-pocket costs and generate some cash flow, said Bruce Jones, an agricultural economist at University of Wisconsin-Madison.

Still, depressed commodity prices, ongoing high expenses, and low income projections have farmers feeling more pessimistic than ever before, according to the latest DTN/The Progressive Farmer Agriculture Confidence Index.

Some commodity prices are about half of what they were a few years ago, yet farmers are paying the same, or more, for many things they need to run their businesses.

“It’s just a tough year in trying to make everything work and not lose money,” said Katie Micik, director of the DTN agriculture confidence index.

“How long will this last? I wish my crystal ball would tell me,” Micik said.

It could take a widespread natural disaster, or multiple smaller disasters, to put much of a dent in global grain supplies, according to Micik.

“With ongoing global crop surpluses, farmers see little hope for their incomes to improve this year,” she said.