Status of Wisconsin Agriculture 2010 - Agricultural & Applied ...

Projected Wisconsin Dairy Farm Assets and Debt, By Sales Class, December 31, 2009, $ Million
Assets Debt Equity
Sales Class 2009
Change
from 2008 2009
Change
from 2008 2009
Change
from 2008
$1,000,000+ 3,766 (461) 1,269 105 2,497 (566)
$500,000 - 999,999 3,068 (290) 672 51 2,396 (341)
$250,000 - 499,999 5,327 (368) 722 60 4,605 (428)
$100,000 - 249,999 5,443 (369) 560 29 4,883 (399)
< $100,000 1,663 (103) 131 0 1,502 (78)
Total 19,267 (1,566) 3,384 245 15,884 (1,810)
Source: Projected by authors.
adds up to a total estimated loss in
dairy herd value of $1.2 billion. In
allocating this loss across dairy farm
size categories, we assumed equal
cow and heifer values. This may not
be a valid assumption, but we had
no means of differentiating cow and
heifer value by herd size.
We estimated the loss in the value of
Wisconsin dairy farm land and
buildings to be 3 percent in 2009,
which corresponds to the January-
July 2009 change in Wisconsin
farmland value reported by USDA-
NASS and the change in “good”
Wisconsin farmland from October 1,
2008 to October 1, 2009 reported by
the Federal Reserve Bank of
Chicago. We applied this percentage
equally across dairy farm size categories.
The total estimated reduction
in land value for all Wisconsin dairy
farms was $390 million.
We have no basis for estimating
losses associated with the sale of
assets to cover dairy farm operating
losses. Instead, we crudely estimated
operating losses and then assumed
that these were offset entirely by
borrowed funds. This was clearly
not the case, but the effect on dairy
farm equity is the same whether
assets were sold or money borrowed
to cover losses.
While it is impossible to measure
the cash flow deficits incurred on
Wisconsin dairy farms in 2009, we
do have imperfect measures of gross
and net cash income. We used the
Wisconsin All-Milk price applied to
monthly milk production as our
measure of gross dairy income and
added to that an estimated $240 million
in MILC payments for the year.
We used USDA-ERS estimated cash
operating costs as our measure of
cash expenses. Subtracting cash
costs from cash receipts yielded an
estimate of total 2009 cash flow of
negative $245 million. This loss was
allocated across farm size categories
in proportion to their percent of the
total livestock income in 2008.
The estimated total value of assets
held by dairy farms dropped about
$1.6 billion in 2009. Debt, which is
actually a combination of asset liquidation
and borrowing to offset
negative cash flow, rose by an estimated
$245 million. The net effect is
an estimated $1.8 billion drop in
equity for all Wisconsin dairies.
The reduction in assets and equity
are distributed somewhat uniformly
across the four size classes of dairies
with sales in excess of $100,000.
However, the bulk of new borrowing
was done by the largest farms.
The overall debt-to-asset position of
all Wisconsin dairies rose from
around 0.15 in 2008 to roughly 0.18
in 2009. This indicates the weakened
financial position of the Wisconsin
dairy industry. Nonetheless, a
6 STATUS OF WISCONSIN AGRICULTURE 2010—THE WISCONSIN FARM ECONOMY
debt-to-asset position of less than
0.20 still represents a sound financial
position overall, despite some
serious problems at the individual
farm level.
The largest dairy farms are likely to
present some challenges for agricultural
lenders in 2010. These dairies
are already heavy users of credit.
They had 27 cents of debt per $1 of
assets in 2008 and by 2009 they had
about 34 cents of debt per dollar of
assets. This elevated debt-to-asset
position will be a concern to lenders
who have to ensure that loan balances
do not become too large relative
to the value of collateral such as
cows and farm real estate.
While we believe it is important to
provide a ballpark estimate of the
loss in equity in the Wisconsin dairy
farm sector due to low milk prices in
2009, we must emphasize that this
estimate is tentative. We made
numerous assumptions to derive the
components of equity loss, and the
validity of many of these assumptions
cannot be easily verified. Some
assets, like cows and heifers, could
regain value quickly with a strong
rebound in milk prices. The value of
other assets, such as land, depend
more on conditions outside of dairying
than on milk prices. And it is
impossible to accurately forecast
when added debt will be repaid or
discharged or when farmers will
replace assets sold to cover losses.