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RSS By: Dairy Today editors, Dairy Today

Thoughts and comments from Dairy Today readers.

Of Cows and Men – A Look Back on Milk Prices

Jun 20, 2014

Market forces disrupted our industry a few years ago – and they’ll do it again despite weather or government programs.

By Eric W. Lang, Iowa dairy producer

"These are the best of times, these are the worst of times," would aptly describe Iowa dairy farming in June of 2008. The rain had begun on June 8 and just hadn’t stopped. Farmers weren’t able to bale hay and often couldn’t haul manure for days at a time. Fields flooded and some farmsteads were literally under water. Meanwhile, our city cousins had some trouble of their own.

Ten square miles in Cedar Rapids flooded. In Iowa City the University of Iowa and surrounding area had extensive flood damage. Dairy country around Decorah in northeastern Iowa had six inches of rain in 48 hours and parts of that city flooded as well. Back on the farm, the skies continued their assault but the news from Chicago had never been better.

Class Three Milk Futures on the CME were in record territory for the next two years. Two years, that’s 24 months or 48 milk checks, every one promising profit from every cow.

June 12, 2008, milk futures stood at $20.10 followed by at July $19.97. Then it just got better with two months over $21 and the rest of the year over $20. But it didn’t stop there. All of 2009 milk futures averaged $20.22 on that day. Only a few kooks and nuts saw anything but high prices and good times for milk producers. The kooks and nuts proved their wisdom in this instance.

July 2008 actual Class III milk came in at $18.24 which was about ten percent off the June high point. August got worse, settling at $17.32 with more weakness for the rest of the year. Weakness we could live with. The torrential rains were over, August was dry and milking cows was easier, just less profitable.

Milk price continued its decline during 2008 with December settling at $15.28 - about 25% off the June high. Now began the slaughter.

January 2009 closed at $10.78 and February closed at $9.31, fifty cents under the support price. Three more months closed under $10.00 and prices didn’t break $14.00 until November. The year ended with an average Class III milk price of $11.36 – 56% of the future prices offered 18 months earlier. Cows were slaughtered, farmsteads were financially under water, dairies closed and vocations changed.

Fallout from high milk prices transitioning to low milk prices took months where the damage from heavy rains and flooding of a year earlier had been immediate. Market forces washed away dairies large and small from California to Maine just as levees and dams breached washed away neighborhoods.

Commentary on the Time

We tend to look back on this time not as a missed opportunity to forward contract milk and lock in some prosperity, but we remember it as a time when so many hung up the milkers for the last time. A few people got into the dairy business when prices were low and there was only one way to go, that being up. This was an opportunity for them.

September 2008 took me to a Registered Dairy Sale where I rendered pedigree announcements. "What a hot sale," I thought, "There is no way these cows can pay for themselves." My public pronouncements indicated otherwise.

June 2009 found me in the box at the Grand National Ayrshire Sale not only encouraging bidders to "take advantage of the good value and great cattle in today’s offering," but purchasing 14 head and being contender on an additional 24. What a hot sale for me. Opportunities like this come along just two or three times in a lifetime, though at an enormous cost to our dairy.

I remember the phone calls from young milk producers who apparently thought I had some inside knowledge of when milk prices would improve, and what they could do to hold on until that happened.

Most received a pep talk and some encouragement. A couple got the "It’s not dishonorable to try and fail at dairy farming. At least you were In the Arena and those who point fingers are the ones who never tried." One friend got a referral to a bankruptcy attorney who could help him out.

I’ll not encourage you one way or another what to do with your milk marketing efforts now that milk price has started to decline. There are a host of milk marketing prophets and professionals on whom you can call, should you choose.

Do, however, remember that the waves of creative destruction are always at work. Rainfall and market forces disrupted our industry a few years ago. Market forces will do it again regardless of the weather, government programs, promises or efforts of our elected officials.

Lang is president of Yarrabee Farms, Inc., near Brooklyn, Iowa.

Why Are There Five Classifications of Milk?

Apr 16, 2013

To the editors at Agweb:

We are writing to ask why there are classifications of milk, one through five. This was set up back in the ice age, when you cut the ice off of the ponds, and the cans of milk were cooled that way.

Milk products that you buy in the store are all listed as grade A...printed on the side of the product. It doesn’t matter whether it is fluid milk, sour cream, butter, cottage cheese, hard cheese, or yogurt. It is all classified as grade A. The NY State Dept. of Agriculture doesn’t need to take money out of our milk check just to keep the fat cats warm or cool in their offices.

The Chicago Market Exchange, or the Boston Milk Market are not needed. They just take money from our farmers’ pockets.

Thank you.
John and Jan Frederick
Frederick Farms
2090 McBurney Rd.
Clifton Springs, NY 14432
(315) 548-2515
jffarms@zoom-dsl.com
 

Forget Government Handouts: What Dairy Needs

Sep 28, 2012

Jim,

I laugh at your statement, “None is not an option.” ["Dairy Talk: Government--More or Less" - Dairy Today, September 2012]. Considering that the U.S. is $16 trillion in debt and 75% of the current budget is mandated (entitlements), none could very soon be reality.

I am a traditional dairy farmer, of which there are very few left in the Midwest. I can trace our damage to the passage of the Capper-Volsted Act, co-ops’ formation and vertical integration. Consequently, I don’t feel sorry for these government-dependent guys that have literally received millions of dollars in government benefits and still “need more.”

I need five things to happen to stay in business as a dairy farmer. Only one of them is in the farm bill.

1. End mandated ethanol.
2. End $150,000 per-owner agriculture investment credit.
3. End illegal immigrant employment and government benefits.
4. End federal revenue insurance for crop production.
5. End the tidal wave of federal regulations.

Socialism has never succeeded anywhere on earth. Why do you think it can here now?

Eugene Hansen, Minnesota
 

Hope Is Not a Strategy for Struggling Dairy Producers

May 10, 2012

Dairymen need to hold their co-op boards of directors’ feet to the fire and insist that we cut and keep production in line with demand.

 
By John Nye
Mountain View Dairy, Delta, Utah
 
We have been in the dairy business for more than 30 years. Half of that time was spent on a typical New England freestall operation, the remaining time on a large Western, purchased-feed, dry lot type of dairy. Financially, 2009 was the worst year ever in the dairy business. The pundits all spouted that it could never happen again, that it was a once-in-a-lifetime occurrence. Well, here we are three years later, zero change in dairy policy or production management, and history is repeating itself quite quickly.

Where is the dairymen’s outrage? 2012 was supposed to be $18 milk. Now it is $14, except in Utah where it is $1-1.50 less because of inter-market haul and balancing-plant costs due to an exceptionally mild winter and buyers not taking all the milk they had committed to. Take out the $1.30 for normal co-op costs and suddenly you have $12 milk to pay for $18 production costs.

The current milk-price feed ratio is 1:45. That is worse than any month in 2009 and worse than any month we could find all the way back to 1985.

The only ones being hurt by this scenario are dairymen. Cooperatives pay all of their expenses and give us some of what's left over whether it's profitable for us or not. They cannot lose with this arrangement. Milk haulers are very happy as they are hauling more milk farther than ever, getting paid for every hour and mile they go. Proprietary plants and co-op customers are ecstatic, buying all the cheap milk they want at a discount for the foreseeable future. We as dairymen don't seem to be cohesive enough to do anything about it.
        
There is no incentive for our milk buyers to control supply. In fact, they appear to be more afraid of a shortage rather than being long. They sit back and watch us burn up our equity, and  we are proving time and time again that we are willing and able to continuously produce milk way below cost. It is a given that when one of us goes broke, somebody will put cows on our dairy and keep on producing cheap milk.
 
We as dairymen need to control supply to become and stay profitable. Our boards of directors seem to be unwilling to step on management's toes and turn this overproduction around. In the case of DFA’s Mountain Area Council, we have seen this price decline coming since January. Why did it take until May to do anything at all about it? On a side note, they have instituted a growth management plan which may not be perfect, but it is a good start. My opinion is they need to do more cutting, at least on a temporary basis, immediately.

Dairymen need to hold their co-op boards of directors’ feet to the fire and insist that we cut and keep production in line with demand. A 2 or 3 percent oversupply of milk slashes our price by 30% or more.
 
Until recently, the West has had cheap feed. Our production costs were less, and we got paid about a dollar less per cwt. than the East. Through participation in the Cornell Dairy Profit Monitor, we generated a comparison report of 30 farms with more than 700 cows, generally located in the East, for the 12 months of 2011. This showed an average price of $3.38 higher than our dairies’ average net milk price over the same time period. As China and other countries have moved in to compete with us for forages, our cost of production has risen to be comparable to the East. We have not had a corresponding price increase to remain competitive.
 
Processors continue to view the West as a source for cheap ample milk supply. Farmers, grain mills and other suppliers are tiring of dairymen not being able to pay their bills. They are more than happy to have other outlets for feed that can pay them a high price in a timely fashion. Our price must come up to be competitive with the rest of the country or we must go out of business. But with this necessary price increase, we must have a growth management in place or the race to the bottom will continue.

In the past, growth of our dairy business -- usually measured in cow numbers and milk production -- has been a given, according to ourselves and our bankers. Now, vertical integration, not growth, may become the new norm. We must NOT produce milk that has no market. This is usually where the experts step in and say we have to get more efficient. We as dairymen have latched on to cost-effective efficiencies and are always working on that. We are at about the point as an industry where cost-cutting simply to stay in business will result in compromising the high milk quality that is expected by the consumer.
        
Dairymen in the rest of the country are not happy with the current downturn in prices, yet they remain profitable. There is no reason for them to cut back -- yet. It is a bigger problem for the West right today, but it will soon be trouble for our Eastern counterparts. It’s important to remember that we have more similarities as an industry than differences.
          
Until we cut production and cow numbers and raise the plateau of milk prices, we will continue to be unprofitable or just barely break even. We are not making forward progress or even keeping our businesses viable for the future generation of family owners.
          
Investment in development of new dairy technology is slowing in this country because dairymen aren't buying what the companies have to sell in this economic climate. China is adding lots of cows, using our technology and ideas. Those cows have to get fed and they are not going away as competition for our feed. Co-ops and manufacturers of milk products have to understand that for the long term viability of the Western milk supply, prices have to come up to reflect the increased cost of production in the West for us to become healthy again as an industry.
          
We as dairymen have to get a backbone, work together to insist that these changes be made and keep a tight rein on supply. Making the needed milk has NEVER been a problem. Just pay us a fair, sustainable price for the high quality milk we produce and the rest will take care of itself. We don't need low interest loans or more banks -- just a fair price.
        
As I visit with neighbors and other dairymen, they all hope it will get better soon. Hope is not a strategy. Unless we, as an industry, get proactive in the very near future, you can bet that the bleeding will go on for a very long time, just the same or worse than 2009. The only people who have incentive or are going to fix this are dairymen. NOBODY is going to do this for us.

Defending Animal ID

Jan 18, 2012

Dear Dairy Today:

As a dairyman and a veterinarian, I read Jim’s editorial “Dairy’s Go-It-Alone Animal ID” with interest. Of even greater interest, and profound concern, were the responses from our brethren in the beef industry.
 
Both the editorial and the two posted responses used Foot and Mouth Disease (FMD) as their example. An excellent choice, as we know of no other disease that could compare to it, for its potential to devastate our animal agriculture. FMD is incredibly contagious and unquestionably shuts down exports whenever it crops up.
 
The two responses were from individuals involved in beef production. They both felt the key to preventing FMD in the US is better border security. What they didn’t clarify, and what I cannot conceive, is how do we protect our border against something the size of a test tube? FMD virus is common in several countries that would love to do us harm: North Korea, Iran etc. Terrorists would not need to drive a semi-load of cattle or sheep across the border; a test tube in carry-on would do the job. 
 
Even if it were possible to spend enough billions of dollars to give us sufficient border security, and it’s not, why would we want to leave ourselves defenseless on this side? To the French, the Maginot Line seemed like a great idea. As a result, they neglected their internal defenses. When the line was breached, they were ripe for the taking. Sure, let’s have border security, but don’t stop there. There is no single “best defense” with such a disease.
 
The point was made in the comments that animals can move from coast to coast in 48 hours so there is no defense possible. Actually, the mobility issue is a strong argument for RFID. Sure, animals move around, but the majority stay put most of the time. If we can rapidly track who has been where, accurately, we can gain invaluable days in controlling an outbreak. Years ago, we did have FMD in this country and we managed to eliminate it with great effort and expense. In those days, agriculture was far less mobile than it is today.
 
Many/most of us in both the dairy and beef industries spend enormous energy communicating the story of the miracle of modern agriculture to consumers. I passionately do so myself. Are we then to take a position that modern, mobile agriculture is somehow more susceptible to foreign disease outbreaks, but producers were not willing to take rational, protective measures? I don’t want to try to make that argument.
 
One further point was made suggesting we are making a grave mistake by moving the National Animal Disease Lab from Plum Island to Kansas. Maybe yes, maybe no. It’s kind of hard for us on the outside to tell if we are better off with a modern facility inland or a more antiquated but isolated facility. However, I can’t for the life of me see how this means that we don’t need to strengthen our industry’s own defenses in either case.
 
This whole issue between the dairy and beef industries on RFID is analogous to the beef quality differences between our two related industries. I cringe to read about the role the dairy industry plays in beef residues. There is no excuse for it.  We in the dairy industry need to clean ourselves up. The shoe is on the other foot, however, where animal IDs are concerned. If we mess up on something like FMD disease, we are not just in for a bad year or two. Instead, we will need to find a way to explain to our next generation how we managed to screw up the world’s finest agricultural production system right before we handed it to them.
 
Don Niles, DVM
 
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