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March 2010 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

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

Cull Often, Cull Early

Mar 31, 2010


By Jim Dickrell, editor, Dairy Today

 

A few weeks ago, I attended the High Plains Dairy Conference and Tour and had one of those eye-popping moments that only come when you get out of your normal frame of reference.

 

As part of the tour of dairies and heifer ranches, our tour bus swung into Cargill Cattle Feeders just west of Dalhart, Texas. This facility had 81,000 head of mostly black cattle on feed, and ships 170,000 head annually. I admit it. I’m cattle yard virgin. I’ve seen photos, but I’ve never actually been a 400-acre facility of pen-to-pen cattle.

 

This facility has its own feed mill, and processes and feeds about 1,000 tons of TMR daily. It houses a string of 40 horses needed to work this many cattle. The facility has some age to it, built back in the 1970s, but it is well organized with just 60 employees handling this volume of cattle and feed and, yes, manure.

 

As our bus made its way back through the feed alleys, a large, 10-yard capacity truck was picking up deads. Dalhart has suffered one of its roughest winters in memory, and another 5” of snow had come over night. Some of the weaker cattle, housed in open lots, succumbed.

 

Scott Nelson, general manager of the facility and our tour director, didn’t flinch. On a facility this size, death happens. It just happens on a little bit bigger scale than most of us on the bus are accustomed.

 

What matters, says Nelson, is how feed yard personnel handle sick animals, and at what stage they euthanize animals that are really too sick to doctor. Shipping to market is not an option at this feedyard.

 

In fact, after the Westland/Hallmark fiasco in California and a similar incident at Hereford, Tex. nearly two years, the Dalhart slaughter plant simply refuses to take any downer cattle. Nelson agrees with this stance.

 

Slaughter plant managers now realize that animal rights groups probably have undercover employees currently working at livestock slaughter plants. If more abuse happens, they will be recorded for YouTube and released to the world.

 

“If we continue to send downer cows to harvest facilities, animal rights groups will shut these facilities down,” says Nelson. “There will be a lot more Hallmarks, and it will eventually hit your pocket. You will lose these facilities one by one.”

 

That’s why Cargill has decided to euthanize downers as quickly as possible. “Five percent of cull cattle probably shouldn’t be marketed,” says Nelson. “And I realize it is an equity hit to euthanize, but it has to be done.”

 

The cattle industry—and the dairy industry—need to take a proactive approach to handling cull cattle. Nelson quietly pleaded with dairy producers on the tour to become part of that solution.

 

There’s never been a better time to start. With milk prices in the doldrums and cull cows commanding some pretty decent bucks, now is the time cull. But downers and potential downers simply can’t be tolerated. They have no place in the food chain. (Read “A Downer for Dairy.”)

“Leverage your good image as dairy producers with the American consumer to sell more beef,” Nelson urges. “Those Happy Cows eventually have to go into hamburger. They’re just changing careers.”

2010 Dairy Outlook Clouds Over

Mar 15, 2010

By Jim Dickrell, editor, Dairy Today

 

The optimism that reigned in December and January for 2010 milk prices has become a much more sobered outlook for the rest of the year. The only good news: Don’t expect a repeat of $10 or $11 milk so common last year.

 

Global dairy demand will clear U.S. surpluses, though the demand is not enough to drive milk prices up significantly, says Bill Cordingley, a dairy analyst for Rabobank International. Cordingley, a young Aussie based in New York City, offered his outlook at last week’s High Plains Dairy Conference in Amarillo, Texas.

 

“I’m not overly optimistic about demand racing away in 2010,” he says. Why?

 

• The economic recovery expected in 2010, driven by 2009 U.S. stimulus dollars, is more uneven than expected. “Retail price deflation (which had occurred in the second half of 2009) is over,” he says. And as a result of higher milk prices, many dairy products on grocery shelves are more expensive than substitute products. For example, butter is now much more expensive than vegetable-oil based spreads.

 

• “With the U.S. unemployment rate still running at 9.7%, and consumer spending 70% of the economy, where will the growth come from?” he asks.

 

• In addition, many wholesale buyers who bid up dairy products in the fourth quarter of 2009, fearful of shortages reminiscent of 2007, have now filled their pipelines. They’re now in position to “wait and see” what happens to demand, milk production and prices heading into the second and third quarters of 2010.

 

More ominously, there are potentially even darker clouds on the horizon. Cordingley says the 2010 downside risks are a double-dip recession, a spike in Northern Hemisphere milk production in the United States and Europe, and a sharp reduction in dairy imports into China. “None of these are certain, but the risk lies on the downside,” he says.

 

If you can survive the next year or so, Cordingley believes dairy price prospects are much brighter. Population projections show the world will add another 400 million consumers over the next five years as the global economy revives.

 

“Incomes will increase in Asia, and there will be a continued conversion to more Westernized diets that contain dairy products,” he says. McDonald’s, for example, plans to open 500 more restaurants in China alone over the next five years.

 

“At Rabobank, we feel dairy is positioned pretty nicely in this picture and we’ll see good growth in the next five to 10 years,” he says.

 

Low-input and grass-based dairy producing nations will eventually grow their milk output and become more competitive. But that could be a decade away. In the meantime, the U.S. is well positioned to take advantage of growing global demand—at the right price. To do so, U.S. suppliers will have to develop better relationships with key buyers and better tailor products to end-user requirements.

 

Of course, the key to taking advantage of these new opportunities is to survive the short-term price squeeze. “We’re clearly in a volatile situation and the old rules don’t apply…. Dairy producers need to manage risk and be forward thinking,” he says.

 

“When you can lock in a margin, it is more important to do it today than ever before…. Caution is the better part of valor,” Cordingley says.

 

That’s good advice. The trick, of course, is finding those prices that offer those margins. That means knowing in detail your cost of production and cash flow needs. It means paying attention to markets daily. And it means not hesitating to lock in margins when they occur.

 

Contact Jim Dickrell at jdickrell@farmjournal.com.

 

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This column is part of the Dairy Today eUpdate newsletter, which is delivered free to your inbox every Tuesday morning. Dairy Today eUpdate provides the latest in dairy markets, policy, management and production, and news. Click here to sign up.

Free Dairy Trade—or Not

Mar 01, 2010

By Jim Dickrell

If recent press statements are taken at face value, the National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC) are in favor of free trade in dairy—except when they’re not.

 

Editor’s Note: Starting this week, Dairy Today’s eUpdate will be coming to your in-box on a weekly basis. Robin Schmahl and I will rotate as lead columnists. We’ll also be featuring market analysis and strategies from Stewart-Peterson and Rice Dairy. Plus, we’ll provide links to expanded columns from our Dollars and Sense producer columnists, and a host of other experts ranging from personnel management to nutrition to herd health. On a rotating basis, Dairy Today’s eUpdate will feature nearly 20 columnists to provide you the latest in dairy markets, policy, management and production.

Last Wednesday, the groups issued a joint press release extolling the virtues of House bill HR 4645, which would make trade with Cuba easier. The justification: “The Cuban market holds significant promise for U.S. dairy exports but has become increasingly difficult to supply within the past few years,” says Tom Suber, USDEC president.

Fair enough.

 

But in February, NMPF and USDEC issued another joint news release, this one opposing the Trans-Pacific Free Trade Agreement with Australia, Chile, Singapore, Peru, Brunei and New Zealand.

 

Suber’s reasoning: “It’s the inclusion of New Zealand and the exceptional anti-competitive structure of the New Zealand dairy industry and the entirely lop-sided nature of the dairy trading relationship between the U.S. and New Zealand that compels USDEC to call for the exclusion of U.S-New Zealand dairy trade from the TPP FTA….  Simply put, there is no way to create a balanced situation and level playing field for dairy products in a bilateral or regional trade agreement of this nature between the U.S. and New Zealand.”

 

Chris Galen, NMPF spokesperson, adds: “A Trans-Pacific Trade agreement that basically gives Fonterra more access to the U.S. market, without any reciprocal export opportunities for the U.S., is not a good opportunity. The world of trade policy isn’t a matter of black and white. Each agreement should be looked at individually.”

 

Well, okay. But the Canadians and the Europeans and every other protectionist market can make the same argument. Why should anybody let in U.S. dairy products when we sanctimoniously demand access to their markets?

 

I’m not naïve. I understand a certain segment of protectionist U.S. dairy producers would go ballistic if NMPF and USDEC supported freer trade with New Zealand. Politically, NMPF and USDEC probably have to oppose it. In the long run, though, a more consistent approach would be better. Demanding a 10-year phase-in period, similar to the transition in NAFTA, is reasonable and consistent, and would give the U.S. dairy industry time to adjust.

 

What’s really at stake here is the future direction of U.S. dairy policy. Are we going to be globally and export focused? Or, are we going to continue our tepid approach of focusing on our domestic market and taking only what the export markets might grudgingly give us?

 

Yes, each approach has its risks. The greater risks and the far greater rewards lie in global markets. With the Great Global Recession of 2009 slipping into 2010, some portion of the industry is hesitant, even fearful, of global competition. Dairy producer leaders need to step forward to show their reluctant followers why growth is the better way forward.

 

To its credit, NMPF is trying to position the U.S. to be more globally competitive with its 2012 Farm Bill proposal. That proposal, yet to be finalized, would do away with the dairy price support system, streamline Federal Orders and perhaps create a U.S. export marketing agency in common (patterned after the Kiwi model).

 

Granted, the Kiwis deregulated years ago, and have at least a decade’s more experience in meeting market demands. That doesn’t mean the U.S. can’t compete with them. It just means we need to get started. The sooner, the better.

Jim Dickrell is editor of Dairy Today. Contact him at jdickrell@farmjournal.com.

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This column is part of the Dairy Today eUpdate newsletter, which is delivered free to your inbox every Tuesday morning. Dairy Today eUpdate provides the latest in dairy markets, policy, management and production, and news. Click here to sign up.

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