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December 2008 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

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

$100 for cow rendering?

Dec 24, 2008

The cost of calling your local renderer is likely to go up in the very near future.

The reason: FDA’s “enhanced feed ban regulation,” which prohibits the use of brain or spinal cords from dead stock greater than 30 months of age for use in animal feed. The regulation’s effective date is April 27, 2009. But since no feed from these animals can be in the pipeline on April 27th, renderers could start taking action as early as January.

All of this is being driven by the fear of bovine spongiform encephalopathy (BSE) recirculating into the feed supply. The Harvard Risk Assessment found that “specific risk material” such as cattle brains and spinal cords, if left in the feed chain, could cause new infections to occur.

The “enhanced feed ban regulation” has been on the docket for years. Some 840 comments, many pointing out the proposal pitfalls, were submitted to FDA while the rule was being considered.

Lack of progress on the proposal became an issue as the Bush Administration negotiated with the South Koreas over the recent trade agreement. As you know, South Korea street protests over U.S. beef—and possible BSE contamination--reached hysterical levels. The National Cattlemen’s Beef Association was opposed to the feed ban regulation because of its high cost/low benefit ratio. But a source within NCBA says the South Korean free trade agreement took precedence, with the feed ban regulation a pivotal concession.

Renderers estimate that removing the brain and spinal cord from a cow will cost in excess of $200. Why so much? FDA prohibits mechanical separation of the prohibited material out of fear the process will either be incomplete or contaminate surrounding material. So the separation of brains and spinal cords must be done manually—driving up costs.

Renderers know few dairy producers will pay the full $200-plus cost, though some may soon start charging you up to $100 for the privilege of having the animal rendered. In addition, you will have to age verify all of your deadstock and maintain those records for up to a year.

(The U.S. Food and Drug Administration has inspection and verification authority. Penalties for failure to comply with the rules carry fines and imprisonment of up to five years.)

Plus, renderers might ask you to start marking each carcass with an orange paint stick. A large “U” on the animal’s side is indication the animal is under 30 months of age. A large “X” indicates that animal is 30 months of age or older.

FDA acknowledges its new rule will drive up costs and fill up landfills. FDA estimates total compliance costs of $64 million to $80 million annually. Producer costs could range from $28 million to $39 million.

The agency also estimates a 26 to 42% drop in the number of cattle sent for rendering. And it estimates from 185,000 to nearly 290,000 tons of additional animal carcasses and parts will be landfilled each year.

Plus it acknowledges potential environmental threats: contamination of surface and ground water, odors and the release of pathogens to the environment from decaying carcasses. It’s not a pretty picture.

In its comments to FDA on the final rule, the National Milk Producers Federation (NMPF) requested that FDA work with USDA to come up national deadstock guidelines. “FDA punted, and said disposal of carcasses is not under its jurisdiction,” says Jamie Jonker, NMPF’s director of regulatory affairs.

If you can’t have your deads rendered, composting carcasses is probably your best alternative. Click here for a compost guide from the Minnesota Department of Agriculture. Other alternatives for deadstock disposal are landfill (good luck), burial (a bit of a problem in areas with high water tables or frozen ground six months of the year) or incineration (carbon emissions?).

Good luck, and Happy New Year.

--Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.

Will lower feed prices be enough?

Dec 11, 2008
By Jim Dickrell

Last week, I visited two Midwest dairies for stories I’m working on for the February issue of Dairy Today.

As I wrapped up each interview, the discussion invariably turned to the prospects for '09 milk prices. My crystal ball in no less clear than anyone else’s. But throughout this fall, I’ve maintained that these incredibly strong feed prices suggest that low milk prices in 2009 will be short-lived.

Back in September, with corn running at $5.40/bu and soybean meal at $400/ton, breakevens for an average Midwest dairy were running close to $19/cwt. Even top-end dairies, averaging 24,000 lb./milk/cow, had breakevens close to $17.50, according to Iowa State University (ISU) spreadsheets.

The $15/cwt. Midwest milk price (Class III + $1 basis) projected by the Chicago Merc for this winter and spring suggest only producers willing to tap into cash reserves (if they have any) and leverage equity were going to be able to hold on for very long. But falling feed prices changes the equation pretty dramatically.

I punched in $3/bu corn, $260/ton soybean meal and $300 cottonseed into the ISU spreadsheet. With those feed prices, breakevens for a 20,000-lb. herd drop to $15.25 and for a 24,000-lb. herd to $14.

That suggests to me that average herds will be on the bubble for the first six months of 2009. Better than average herds might still have a bit of cash flow cushion.

But this is all theoretical, of course. Most dairies have locked in feed prices, particularly on the forage side. If they grow their own hay and corn silage, they’ve already paid the high seed, fuel and fertilizer bills that it took to grow those ’08 crops. Many also locked in corn and protein prices for a good chunk of 2009. One can only hope they locked in some favorable milk prices that were still available earlier in the year.

A lot of producers are also hoping their neighbors bid their herds in the last round of the Cooperatives Working Together program. We’ll find out later this week or next how many cows have been accepted. The last round, just this past July, took out only 25,000 cows because bids were so high. The scuttlebutt now is that bidders were much more realistic this time around—given 2009’s dire outlook. We’ll see.

Also on the plus side: CWT has supported the export sales of nearly 2 billion lb. of milk equivalent through the first 11 months of 2008. That’s not chicken feed, and will sop up 55% to 60% of the increase in milk production this year over last.

But there are a few other buzz killers to keep in mind:

  • Yes, we sent 67,000 more cows to slaughter through the first week of November than last year. But the latest USDA estimates also show that total U.S. dairy cow numbers are still running some 88,000 head higher than last year. Half of that number, 44,186 head to be precise, are Canadian heifers that have come south since January 1 through November 22.
  • And then we have sexed semen. The A.I. studs tell me their sexing machines are running full bore. The full brunt of these sexed breedings are still populating unfreshened heifer pens; it’s likely they do account for the strong number of replacement heifers we have on hand.

Taken together, those two factors make it increasingly difficult for CWT to cull enough cows fast enough to make a difference.

Bottomline: If the Iowa State spreadsheets tell us anything, it’s that it doesn’t pay to be average.

--Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.
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