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December 2013 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

2014: Real Reasons for Optimism

Dec 30, 2013

Dairy farmers, by nature, are a tempered-by-reality optimistic bunch. They have to be—or they wouldn’t spend hundreds of dollars for a bag of seed corn or hundreds of thousands on a milking system.

Farmers also know that Murphy’s Law is alive and well. If things can go wrong, they usually will. 2013 was one of those Murphy’s Law years. A cold, wet spring meant thousands of acres got planted late—or not all. Alfalfa winterkill in the Midwest left forage in short supply—and what there was, exceedingly expensive. And even though the U.S. harvested a record corn crop, it was often difficult to bid corn out of bins and into feed bunks for less than $5 per bu.—even though the CME said it was only worth that much.

Knowing that things will go wrong, I’m still pretty optimistic going into the New Year.

For one thing, milk prices are strong. USDA is projecting that they’ll remain strong. The 2013 U.S. all-milk price will average $20. For 2014, USDA says the all-milk price average will range from $19.70 to $20.50. Not bad, considering the aforementioned $5 per bu. corn. In fact, USDA projects corn prices to be in the $4.05 to $4.75 per bu. range next year.

Rabobank agrees, thanks to strong export demand from China. "We expect [dairy commodity] prices to hold around current highs before easing from mid to late 2014 with continuing supply growth in response to significantly improved margins," says Rabobank analyst Tim Hunt.

Other reasons for optimism:

A new farm bill also might be in the offing early next year. The big sticking point is food stamps. The Senate is willing to cut $4 billion in Supplemental Nutrition Assistance Program funding; the House of Representatives wants to cut $40 billion. The compromise that is being discussed is $8 billion.

Lobbyists for the dairy industry continue to fight over what should be new dairy policy. Everybody agrees dairy price supports are outmoded, and income-over-feed-cost margin insurance makes much more sense. The sticking point is whether a dairy market stabilization program is needed along with margin insurance to avoid long, expensive periods of government indemnities.

I’m not convinced market stabilization is needed, on two conditions. One, premiums should be set at more actuarially sound levels. Two, sign-up dates should be set early (similar to crop insurance) so farmers can’t game the system.

Immigration reform might also get some life in the House of Representatives this spring. The recent budget agreement may lay the groundwork for compromise. Don’t expect it to be as favorable as the Senate version, which allows current illegal workers to stay if they meet certain conditions and a method for new workers to come north. But Congressional leadership wants to get immigration reform done before the 2014 elections. Maybe, just maybe, Congress can get it done.

The Trans-Pacific Partnership (TPP) trade agreement is also expected to be finalized in 2014. The agreement will still have to be approved by Congress—no small feat—and the other countries involved.

But the addition of Canada and Japan to the negotiations earlier this year "has created a new paradigm in the TPP negotiations that, if done properly, could provide a significant boost to the prospects of an overall net positive outcome in the negotiations," says Tom Suber, president of the U.S. Dairy Export Council (USDEC).

Canada is already our number 2 (sometimes #3) export partner. Under current Canadian law, our dairy sales to Canada fall under its Import for Re-Export Program, where Canadian companies can import our milk and dairy ingredients duty-free on the condition that the final product is exported and not consumed by Canadians. The TPP would, presumably, give the U.S. more access to Canadian consumers.

Japan is the second prize. Last year, it imported $284 million of U.S. dairy products, and a favorable TPP which lowers high tariffs and regulatory burdens would undoubtedly add significantly to that total, says Suber. The TPP, even if approved by negotiators in 2014, will take years to implement. But it would set the process in motion, perhaps cementing the U.S. role in global markets for decades to come.

All in all, 2014 could be a very pivotal one for the U.S. dairy industry. Happy New Year!



Lessons from (Another) Dairy Abuse Video

Dec 14, 2013
The report on ABC News last week on another animal abuse case on a large dairy, this time in Wisconsin, offers harsh lessons for everyone. You can view the report here

The videos are difficult to watch, particularly for a consuming public whose only notion of a dairy farm is Elsie the Cow.

The really sad part is that the Wiese farm, like other farms exposed before, is a good farm that is trying to do the right thing. By their own account, the Wieses did almost all the right things. In a statement they released last week, they said:
"We are cooperating fully with the local law enforcement.
"Two employees have been terminated. A third employee has been removed from animal handling responsibilities. Further action will be taken if the investigation warrants it. Additionally, three employees have been identified as specialists who will supervise the care and handling of any cow unable to get up without assistance.
"Within 24 hours after learning about the video, an independent animal care auditor from a national evaluation firm conducted a thorough review of our farm’s written protocols for animal handling and observed farm employees and the condition of our animals. While they noted a few areas for improvement, their overall analysis indicated our animals are clean, well-cared for and treated appropriately by employees.
"Beginning in early 2012, each of our employees reviewed and signed an animal treatment commitment pledge as part of the hiring process and condition of employment. We have updated that commitment and shared it with the employees who work in the special needs hospital area.
"Employees will be shadowed by their supervisor periodically, and without notice, to ensure protocols in place are being met or exceeded."
But, if the videos are to be believed, there were slip-ups. The most obvious was a failure to ensure animal-care protocols were followed religiously and without exception. (More on national dairy care standards can be found here.) That’s easy to say and criticize in hindsight, but it’s a hard lesson no one in the industry should ever forget. Never assume this can’t happen on your farm.
Second, if someone shows up at your dairy with a resume that’s too good be true, it is. The Mercy for Animals under-cover activist who applied for the job came with a long list of experience and references. Upon further review, little of it was true.
Third, Mercy for Animals claims to be an animal welfare organization, much like the Humane Society of the United States, PETA and other such groups. But their claims to be animal welfare advocates fall flat on their face when they wait weeks, even months, to report cases of abuse. Their main motivation is to gain maximum media exposure. History has proven these groups are vegan organizations out to raise funds for themselves and to destroy animal agriculture.
Learn these lessons well. 

Finally, Lower Feed Costs

Dec 02, 2013

With most of the 2013 corn crop in the bin, dairy farmers are finally starting to see some relief in their feed bills. It’s not all Mai Tais and Yahtzee, as one of my farmer friends likes to say, but $4/bu corn will go a long way in easing the income-over-feed-cost red ink.

Robert Tigner, a University of Nebraska Extension dairy educator, shares with me his monthly spreadsheet on dairy costs and returns. When corn was at $7.50/cwt, whole herd feed costs were running in the neighborhood of $17.50 per hundredweight of milk produced. (Note: Soybean meal was plugged in at $440/ton and alfalfa hay at $250/ton.)

Tigner’s October spreadsheet had corn at $4.30/bu, soybean meal at $436/ton and alfalfa at $250/ton. Consequently, whole herd feed costs—for milking and dry cows plus replacements—dropped to $12.75 to $14/cwt. (The lower number is for herds producing 24,000 lb. of milk per cow; the higher number, for 20,000 lb. herds.)

Here in the Midwest, the cost of growing alfalfa is far less than that $250/ton number. Alfalfa winterkill was a huge issue here, with some estimates showing a 50% acreage loss. But if you were one of those lucky folks whose alfalfa survived this nightmare and you don’t have to buy alfalfa, your feed costs will look substantially better. When I plug $100/ton alfalfa into the Nebraska spreadsheet, whole herd feed costs dip below $10 for 20,000 lb./cow herds and close to $9 for the 24,000 lb./cow herds.

Even if milk prices dip to $17 or $18/cwt next year (USDA is predicting nearly $20 milk prices), that will leave some room for real margins.

We might already be seeing the impact of these price changes. USDA’s October Milk Production report showed cow numbers across the country up 13,000 head over a year ago. The nation’s mid-section—Michigan, Indiana, Kansas and Texas—showed cow numbers up 5,000 to 7,000 head in each of these states.

Western states were more of a push. Idaho was down 7,000 cows; New Mexico, down 2,000. California, to my surprise, was up 3,000 cows. But that’s only a 0.17% increase, perhaps a rounding error, based on the fact that more than 100 California dairy farms have exited the business this year.

Farmers also appear to be culling fewer cows. They sent 8,000 fewer head through federally inspected slaughter plants in October than a year ago. And compared to September on a daily basis, slaughter was down about 7%.

All of this suggests lower feed costs—and availability--are driving profit margins. We’re not out of the woods yet. The Nebraska budget shows herds that only produce 20,000 lb. of milk per cow are still not covering total costs when you plug in labor and a return to management. But the good news is, we’re getting there.

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