March 18, 2001 / LEE EGERSTROM STAFF WRITER / St. Paul Pioneer Press
Twice in a period of about three days, a milk tanker truck stops by the Wolf Creek Dairy farm at Dundas, near Northfield, to pick up about 50,000 pounds of milk produced by Paul and Barb Liebenstein's 400 Holstein dairy cows.
"Paul always says that this is a 4-H Club project that got out of hand," said Barb.
The Liebensteins can joke about it now. After a year in which dairy prices fell well below the cost of production at most dairy farms, milk prices are making a rebound -- partly in response to bad weather and lower milk production in Western states.
While no one is predicting a strong financial year for the Wisconsin and Minnesota dairy industry, prices paid for Grade A-quality milk have moved above $12 for 100 pounds, a rebound from when prices dipped below $10 a year ago.
These higher milk prices should put some distance between the dairy farmers and their neighbors, the major crop farmers, who face a fourth consecutive year of growing food that doesn't pay for their costs of production.
Any improvement in farm prices, for any sector of the farm economy, is good news for residents of Minnesota and Wisconsin. With subsidies covering for crashing farm prices, every taxpayer now has a stake on the farm; beyond that, farm and food-related activity accounts for about 25 percent of total regional employment.
Minnesota is the nation's seventh-largest agricultural state with farm income topping $8 billion, in what are considered good years; Wisconsin is the 10th-largest farm state with farm income of $6 billion.
Early forecasts from the U.S. Department of Agriculture and agricultural economists suggest that 2001 will be another year in which most major farm commodity producers in the Upper Midwest will depend on government programs, and not the marketplace, for income to make ends meet.
The outlook is bleak for corn, soybeans and wheat farmers who produce the major field crops.
Prices paid for pigs that are ready for markets are starting to fall, and are expected to be well below the cost of production by Labor Day.
Specialty crop farmers, such as Wisconsin's cranberry growers and Minnesota sugar beet farmers, are facing uncertain years as their prices are under severe strain from surplus supplies.
Only the beef producers, who have a $1 billion industry in Minnesota, appear to be on profitable footing as winter melts into spring for the start of another growing season.
"Farming always has been an act of faith. You have to believe you are going to get good growing weather. For another year, anyway, we have to believe that government is going to bear the risk with us," said John O'Day, vice president at AgriBank in St. Paul, the nation's largest farm lending bank.
That's the assumption shared by everyone getting farm equipment ready for the growing season or going out to milk the cows, said Bob Cropp, dairy economist and director of the Center for Cooperatives at the University of Wisconsin at Madison.
Preliminary data assembled by the National Council of Farmer Cooperatives suggest that government payments last year accounted for 93 percent of North Dakota net farm income, 87 percent of Iowa farmers' net incomes, 69 percent of Minnesota's, about 50 percent of net income in South Dakota and 33 percent of Wisconsin net farm income.
The lower rate in Wisconsin results from specialty crop production, which doesn't qualify for government payments, and from the dairy industry that is receiving some of its year 2000 program payments in this calendar year, said Cropp.
But when dairy prices tumbled last year to some of the lowest levels in about 30 years, government programs kicked in as much as $25,000 for large dairy farms and about $7,000 for the smaller-size dairy farms. "That's what kept people on their farms," Cropp added.
Milk money
Paul Liebenstein, 40, grew up wanting to be a farmer. He was the son of a county Extension Service educator, worked for farmers, and raised Holstein heifers for a 4-H project. He later worked at dairy farms.
Barb Liebenstein, 35, was a veterinary technician at the University of Minnesota and was working at a clinic in Northfield when she met Paul. "He was one of our clients," she said.
Married for 14 years, with daughters age 11 and 7, the Liebensteins expanded their 50-cow dairy farm in 1994 to a 300-cow dairy parlor. They've since grown the herd to 400 cows, putting them in the middle to upper-middle range of area dairy farms that span the distance from 30-cow herds to 2,000 cows.
The herd produces about 30,000 pounds of milk a day. The Land O'Lakes tanker truck hauls the milk to the Dean Foods milk plant in Woodbury, which pasteurizes and bottles fluid milk for the dairy cooperative.
At this dairy, the herd is milked three times a day: 3 a.m., 11 a.m. and 7 p.m., instead of the twice-a-day milkings common on small farms. The Liebensteins employ a dozen full- and part-time workers to care for their animals around the clock, seven days a week.
In 1998 and 1999, when dairy prices shot above $15 per 100 pounds, the Liebensteins said they were convinced the high prices would attract more investment in dairy and crash the milk price. It did.
Prices got as low as $9 per 100 pounds late last year for some classes of milk.
Paul Liebenstein said they used their higher income in the good years to pay debts "and fix everything that needed fixing." That set them up to ride out year 2000.
"The swings (in price) show that supply and demand are pretty close and that any change can give milk prices a wild swing. Two years ago, we knew we were looking at 'Christmas.' We could see that hog prices were crashing, and crop prices were in the dumper. You just had to know that this would catch up to dairy, too," he said.
Wendy Thompson, editor of the Wisconsin Farm Reporter newsletter published by the Wisconsin Agricultural Statistics Service, notes that milk production declined 2 percent in the nation's 20 major dairy states from January 2000 to January 2001. Milk production per cow dropped by 29 pounds in those monthly comparisons as weather influenced feed quality and animal health in some states.
Minnesota production dropped 5 percent as farmers reduced the number of milk cows in the state to 520,000, a 20,000-drop from 2000. Wisconsin production declined 2 percent, losing 30,000 cows, giving the nation's No. 2 milk-producing state 1.3 million dairy cows. Farmers retiring and leaving the farm accounted for most of the declines.
This winter has been more difficult on farmers than on the cows, said Cropp from the University of Wisconsin. "The cows can take the cold pretty well. They have more respiratory problems and their milk production is affected more when you have mild winters with temperatures jumping all over the place." Summer heat is a bigger deterrent to milk production, he said.
Demand for cheese, and particularly for Italian-style cheeses used by delis, pizza shops and other away-from-home eating establishments, help strengthen dairy prices. Cropp said growth in cheese demand is likely to moderate to 2 to 3 percent annually, from as high as 6 percent for some cheeses. The general U.S. economy and consumers eating in restaurants will shape future demand, he said.
Here's rundown on the prospects this year for other commodities:
Pigs
Pork producers have had the worst roller-coaster ride among livestock producers in recent times, with prices dropping to the lowest per pound price in 60 years in late 1998. They steadily increased in 1999, and 2000 was a profitable year for most hog farmers, said John Lawrence, a livestock economist at Iowa State University.
USDA economists warned early this year that the pig crop had more hogs than could be handled in a timely manner by American meat-packing plants. This, the economists warned, threatened to send prices as low as in 1998, when prices bottomed at 9 cents per pound.
Lawrence said hog prices in Iowa and southern Minnesota have actually gained strength since some of the early forecasts. Prices now are running about 5 cents a pound above most farmers' costs of production. "But it doesn't look good for the fourth quarter," he said. "The producers will be looking at red ink starting around Labor Day."
Corn and soybeans
Large global supplies and the strong U.S. dollar in export markets have hammered the two biggest field crops grown in the Upper Midwest. Concern abroad about unapproved bio-engineered genetic material in the corn supply is adding to farmers' export problems, especially with China, Japan and Europe.
John Monson, the recently appointed state director for USDA's Farm Service Agency in St. Paul, said that his agency's lenders are finding this winter that projected corn and soybean income will not recover costs for producing the crops. The farmers will need government payments to make ends meet, he said.
With fixed costs in land and equipment, and a farm program that remains in place at least until October, farmers will go back into their fields this spring "and hope for the best," Monson said.
Farmers and bankers are adding about 10 percent to anticipated farm expenses for fuel and fertilizer, said Erlen Weness, a University of Minnesota farm management specialist for southwestern Minnesota. "This seems to be satisfying the bankers because the farmers are getting the loans," he said.
But looking back at last year, preliminary farm income data show that southwestern Minnesota crop farmers derived from 50 to 70 percent of their net income from government payments based on their corn and soybeans production. In cases of newer farmers with higher debts, the government payments accounted for 100 percent of any net income reported on the farms.
Wheat and small grains
There are good reasons why North Dakota farmers got as much as 93 percent of their net farm income from the federal government last year.
Prices for hard red spring wheat and durum wheat remained below Minnesota-North Dakota average costs of production for the third consecutive year, and farmers in the Red River Valley area of the two states continue to have problems with plant disease and weather, said Don Loeslie, a Warren, Minn., farmer and former president of both the Minnesota and National Associations of Wheat Growers.
The USDA said this week that farmers are likely to raise the smallest wheat crop in 28 years as they respond to weak prices and government benefits that encourage soybean production, instead.
In a speech to the U.S. Wheat Associates trade group this past week, USDA chief economist Keith Collins said world population growth over the next seven or eight years should keep America's share of the world wheat trade at about 24 percent. Those remarks did give some strength to wheat prices during the week, but futures and cash market prices for all types of wheat remain below projected costs of production.
Loeslie and G. Edward Schuh of the University of Minnesota's Humphrey Institute have worked for 20 years in making American wheat farmers aware of currency rate influence on agricultural trade. Any rise in American wheat and small grain prices brings more Canadian wheat, oats and barley across the border, Loeslie said.
The currency difference has widened in recent weeks, Loeslie noted. "I don't see this changing without a change in agriculture policy," he said. "A $100 bill for grain sold in Minneapolis looks like about $140 in the bank account in Canada."
Specialty crops
Weather conditions, and what happens to markets in other states, will determine what kind of a year specialty crop producers have growing applies, vegetables and special oilseed crops. Wisconsin's large cranberry business and Minnesota's sugar beet industry, however, are under stress from carryover supplies from previous growing seasons.
A large Texas sugar company, Imperial Sugar, is in Chapter 11 reorganization. What impact this has on 2001 sugar crop plantings and production isn't known. Similarly, the large Massachusetts-Wisconsin based cranberry cooperative, Ocean Spray, and its primary rival, Wisconsin's Northland Cranberries, are struggling with production that exceeds demand despite new cranberry juice products.
Beef
There's always one bright sky on the horizon. These days, it's beef.
American beef consumption continues to increase as the industry introduces more convenient products. Exports also are rising and keeping demand growing faster than cattle supplies, said Ron Eustice, executive director of the Minnesota Beef Council.
While Eustice has great sympathy for livestock producers struggling with animal health problems in Europe -- mad cow disease and foot-and-mouth disease -- the safety of the American meat supply is expected to increase exports even more by year's end.
With current cattle prices now topping $70 per 100 pounds, the biggest potential threat to the beef industry just might be cattle rustling.
Lee Egerstrom can be reached at [email protected] or (651) 228-5437:
