1. 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

2. Farm Income and Expenses

3. Wisconsin201220132014 Est Million $ Value of agricultural sector production13,603.2414,121.6615,007.04 Production Expenses7,153.177,422.587,673.76 Gross value added6,450.076,699.087,333.28 Capital consumption1,036.521,147.651,152.04 Net value added5,413.555,551.436,181.24 Hired labor and employee compensation924.57924.72978.35 Net rent received by nonoperator landlords249.55211.93233.53 Total interest expenses673.97691.35708.69 Net farm income3,565.463,723.434,260.68

4. United StatesChangeWisconsinChange 20132014F20132014 Est Million $ Value of crop production233,628.95200,600.85-33,028.094,264.963,750.00-514.96 Value of livestock production182,114.77206,552.3024,437.538,050.029,587.491,537.47 Dairy products, Milk40,276.9349,685.175,541.496,775.001,233.51 Meat animals92,087.09107,017.551,717.721,996.22278.50 Revenues from services and forestry54,247.1649,555.64-4,691.521,806.681,669.55-137.13 Value of agricultural sector production469,990.88456,708.79-13,282.0914,121.6615,007.04885.38 Purchased inputs244,083.79257,791.7813,707.987,228.677,461.80233.13 Payments to stakeholders62,835.9766,685.051,828.001,920.57 Hired labor and employee compensation27,742.0029,351.101,609.11924.72978.3553.64 Net rent received by nonoperator landlords17,695.2819,499.061,803.78211.93233.5321.60 Total interest expenses 1/17,398.6917,834.88436.19691.35708.6917.33 Net farm income128,988.1497,316.34-31,671.813,723.434,260.68537.25 @ 25% decrease@ 15% increase

5. 19.97% 28.39% 26.37% 26.21% 27.27%

6. 21.48% 23.61% 27.44% 21.31% 27.35%

7. Variation In Wisconsin Net Farm Income PeriodChange in Net Farm Income Billion $Percent 2008 - 2009-1.3@ -70% 2014 – 2015 (Forecast)* -1.9@ -45% * Assumes $7/CWT drop in milk price for 2015, all other factors at 2014 levels

8. Farm Balance Sheets

9. Wisconsin ARMS Balance Sheet 201120122013 All Farms: TOTALMillion $ Assets: Livestock inventory 817.90829.79916.35 Assets: Crop inventory 2,805.222,829.662,143.94 Assets: Purchased inputs 435.98592.26514.36 Assets: Cash invested in growing crops 77.08103.9375.11 Assets: Prepaid insurance 67.9975.1874.27 Assets: Other 2,347.613,892.102,325.56 Assets: Current 6,551.788,322.936,049.51 Assets: Investment in cooperatives 361.21354.24401.36 Assets: Farm equipment 7,364.918,790.678,544.20 Assets: Breeding animals 3,103.223,020.153,166.52 Assets: Land and buildings 52,530.0151,906.5455,725.21 Assets: Non-current 63,359.3564,071.5267,837.36 Farm assets 69,911.1372,394.4673,886.87 Liabilities: Notes payable within one year 499.431,027.19995.99 Liabilities: Current portion of term debt 886.59826.65872.93 Liabilities: Accrued interest 259.26259.73269.22 Liabilities: Accounts payable 174.64260.50241.51 Liabilities: Current 1,819.922,374.072,379.66 Liabilities: Nonreal estate 1,191.901,098.181,186.83 Liabilities: Real estate 6,063.915,705.675,917.87 Liabilities: Noncurrent 7,255.806,803.927,104.69 Farm liabilities 9,075.729,177.929,484.35 Farm equity 60,835.4163,216.5364,402.52 Assets: Operators dwelling 8,356.618,667.478,199.03

10. D/A =12.813.0 12.7 12.8

11. D/A =12.1 11.9 11.0 10.7

12. Distribution of Farms, Farm Income, and Wealth For Wisconsin

13. Source: ERS-USDA ARMS

16. Dairy Situation and Outlook, 2015 Mark Stephenson Director of Dairy Policy Analysis College of Agricultural and Life Sciences UW-Madison (608) 890-3755

17. U.S. All Milk Price

18. MPP Ration Cost

19. Strong Profits Encourage Output

20. Farms Retained Cows

21. Number of Cows

22. Milk per Cow

23. World Agricultural Supply and Demand Estimates World Agricultural Outlook Board

24. Grain and Livestock Situation and Outlook

25. World Agricultural Supply and Demand Estimates World Agricultural Outlook Board

32. Farm Production Costs Bruce L. Jones Director, Renk Agribusiness Institute College of Agricultural and Life Sciences UW-Madison (608)265-8508

35. Short-Term Energy Outlook Forecast

37. 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%

39. Dairy and Cropping Benchmarks

56. Farmland Values

67. Annual Growth in Farmland Values WisconsinMinnesotaIllinoisIowa 1950-19995.955.625.444.96 1974-198017.7421.0521.4720.76 1980-1989-6.08-11.10-8.82-13.22 2000-20146.809.468.5512.35

68. Supply and Ownership of Midwest Farmland

77. Determinants of Farmland Values

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

80. Annual Growth in Gross Farm Income PeriodIllinoisIowaMinnWisc 1970-19992.442.693.503.84 2000-201310.0210.069.346.33

82. Annual Growth in Net Farm Income PeriodIllinoisIowaMinnWisc 1970-19991.753.050.281.24 2000-201315.7113.2417.666.19

87. Annual Growth in Cash Rents PeriodWisconsinMinnesotaIllinoisIowa 1967 - 19734.852.772.925.39 1974 - 19819.5910.8411.109.67 1982 - 1987-5.17-8.26-6.08-8.12 1988 - 20052.582.571.941.90 2006 - 20148.5710.047.448.75

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

90. Interest rates in early 1980s Current interest rates

91. Farmland Affordability: Purchasing and Leasing

95. 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

97. Cash Rent Equivalents Down-Payment Percentage Expected Annual Percent Growth in Land Value 010203040 -2403.27421.42439.56457.71475.86 0304.65322.80340.94359.09377.24 2197.82215.97234.11252.26270.40

98. Potential Investor Interest in Farmland

101. 1970 -2014 MeanStd DevCoef Var Inflation4.272.880.68 10-year T. Bond7.909.631.22 S&P 50011.8417.021.44 Farmland Minnesota14.5811.740.81 Wisconsin12.609.250.73 Illinois12.7910.790.84 Iowa15.3612.760.83

102. Simple Correlation 1970 - 2014 Inflation 10-year T. Bond S&P 500 MinnWiscIllinoisIowa Inflation1.0000 10-year T. Bond-0.06271.0000 S&P 500-0.1192-0.02321.0000 Minnesota0.5537-0.2701-0.13891.0000 Wisconsin0.5685-0.2416-0.28810.78451.0000 Illinois0.3865-0.2883-0.21420.86680.67921.0000 Iowa0.3879-0.2491-0.17100.90430.65920.93481.0000

103. 1970-19951989-2014 MeanStd DevCoef VarMeanStd DevCoef Var Inflation5.673.010.532.711.130.42 10-year T. Bond9.3110.001.077.369.211.25 S&P 50012.9915.791.2211.9117.801.49 Farmland Minnesota14.7814.811.0013.734.880.36 Wisconsin13.4510.830.8110.855.840.54 Illinois12.9613.191.0212.485.540.44 Iowa14.8615.761.0615.586.350.41

104. Simple Correlation 1970 - 1995 Inflation 10-year T. Bond S&P 500 MinnWiscIllinoisIowa Inflation1.00 10-year T. Bond-0.351.00 S&P 500-0.160.401.00 Minnesota0.67-0.38-0.201.00 Wisconsin0.64-0.45-0.310.861.00 Illinois0.46-0.42-0.300.890.801.00 Iowa0.51-0.40-0.220.940.810.951.00

105. Simple Correlation 1989 - 2014 Inflation 10-year T. Bond S&P 500 MinnWiscIllinoisIowa Inflation1.00 10-year T. Bond0.441.00 S&P 500-0.23-0.221.00 Minnesota0.410.100.001.00 Wisconsin0.17 -0.200.321.00 Illinois0.290.080.000.600.091.00 Iowa0.280.240.010.58-0.030.811.00

106. Capital Asset Pricing Model Risk / Return Trade-off

107. Capital Asset Pricing Model R A Under-performing Asset

108. Capital Asset Pricing Model R A Over-performing Asset

109. Capital Asset Pricing Model For US Farm Real Estate Variable Barry (AJAE 1980) Irwin, Forster, Sherrick (AJAE 1988) 1950 - 77 1947 - 84 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) R2R2 0.260.280.55

110. Capital Asset Pricing Model For Midwestern Farmland State Intercept (Alpha) Market Risk Premium (Beta) Excess InflationR2R2 Wisconsin 11.12 (t = 5.61) -0.05 (-1.05) 2.00 (4.02) 0.44 Minnesota 16.21 (7.50) -0.004 (-0.07) 3.36 (5.81) 0.58 Illinois 13.56 (6.09) -0.06 (-0.85) 2.95 (4.84) 0.48 Iowa 18.12 (7.19) -0.02 (-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

111. Where Are We Headed?