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September 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.

Dairy Programs Reduce Volatility, But…

Sep 30, 2010

Analysis of three alternatives to current dairy policy show they all reduce milk price volatility, but do little to enhance price, and in one case, actually decrease average prices paid to dairy farmers.

The analysis, done by economists at the University of Wisconsin, Cal Poly and the Food and Agriculture Policy Research Institute (FAPRI), show the supply management programs offered by the National Milk Producers Federation, the Holstein Association and Agri-Mark can reduce wild swings in milk prices. But the Holstein Association price stabilization plan, as characterized in the Costa-Sanders bill, would actually reduce average U.S. All-Milk prices by 69¢/cwt relative to FAPRI’s baseline.

Under baseline conditions, FAPRI assumes a resurgence of dairy cash receipts to U.S. dairy farms from a low of $24 billion in 2009 with a steady climb to nearly $40 billion in 2019. The baseline includes continuation of the dairy price support program and Milk Income Loss Contract payments. (Government outlays for these support programs are only about $500 million over the 11 years.)

Scott Brown, a FAPRI economist, says the baseline assumes a resurgence in the U.S. economy over the period and continued growth in U.S. dairy exports as the world economy recovers as well. In the FAPRI economic model, Brown then overlaid the National Milk Producer’s Foundation for the Future Program. That program does away with dairy price supports and MILC payments and sets up a margin protection insurance program.

In the FAPRI model, the U.S. All-Milk price under the Foundation plan almost mirrors the baseline program. It exceeds baseline by a mere 2¢/cwt in 2011, and then is slightly less than baseline for the remainder of the decade. “The NMPF program changes result in vary small changes in market supplies, demands and prices,” Brown says.

He says the margin protection insurance provision will likely be triggered less than 10% of the time, but the program can be thought of as a safety valve in periods of low margins. And because producers will be paid nothing for a few percentage points of their milk when those triggers occur, he assumes supply will adjust quickly to those non-payments.

The All-Milk price under FAPRI’s baseline will be $15.32/cwt from 2013 through 2019. Work done by economists at the Universities of Wisconsin and Cal Poly show the Foundation’s all-milk price will be 17¢/cwt higher than that, Agri-Mark’s 23¢ higher. But the Costa-Sanders bill would be 69¢ lower than baseline, 86¢ lower than the Foundation’s, and 92¢ lower than Agri-Mark. Costa-Sanders would also likely result in lower Class III prices than the other three scenarios--44¢ lower than baseline, 92¢ lower than Agri-Mark and $1.15 lower than the Foundation plan.

One advantage of Costa-Sanders is that it reduces price volatility the most. Baseline variation is 83¢ while Costa-Sanders is 28¢, Agri-Mark, 30¢ and Foundation, 35¢. The Costa-Sanders plan would increase fluid milk sales by 100 million lb., but only because milk prices would be lower.

The point of all this modeling is not that they are dead-on accurate, acknowledge economists. But they do give dairy producers a starting point in evaluating relative differences. Each program has its advantages, but there are clear differences as well. Let the tweaking begin, and the debate continue.

 

Dairy Protesters Need to Be Careful What They Wish For

Sep 29, 2010

protestorsAs Air Force One came gliding in on its landing path to Madison, Wis. yesterday afternoon, a small group of anti-CAFO protesters rallied at the gates of World Dairy Expo.

The protesters, who oppose large confined feeding operations (CAFOs) and the Wisconsin siting law, were clearly upstaged by President Obama who came to Madison to give a speech at the University of Wisconsin. Local media clearly opted to cover Obama, the first sitting president to visit Madison since Harry Truman came in 1950.

The protesting groups represented Family Farm Defenders, Stop Factory Farms and the Crawford Stewardship Project. Their foremost concern is the Wisconsin Siting Law, which sets state-wide standards that expanding livestock operations must meet. Once they do, they are permitted to build and operate the facilities. The only exception is if local governments can prove, through science-based findings, that tougher requirements are needed to mitigate land use and pollution concerns.

“Economic development and land use planning are impossible to negotiate under the present [siting] law,” counters Edie Ehlert, Crawford Stewardship Project Coordinator and one of the protesters. “We want to promote a diverse rural economy, to include sustainable farms of a size the land can support, local businesses and low impact rural tourism…. We cannot accomplish these goals with the [siting] law. CAFOs are incompatible with other forms of rural economic development.”

Most commercial dairy operators, of course, would beg to differ. Every cow added to a local tax base adds thousands of dollars, multiplied several fold as it makes its way through local and regional economies.

What the siting law does is level the playing field for producers who want to grow to a size that is economically competitive, not only state wide, but nationally and now globally. Without the ability to grow, local dairy industries stagnate and eventually die.

That was happening in Wisconsin and much of the Midwest in the 1980s and 90s. But as dairy producers here learned how to manage cows in freestalls and parlors, and figured out they could compete and even out-compete Western dairies on a cost basis, the industry has regained momentum. Since 2001, Wisconsin has rebuilt market share. Most of that has come through more milk per cow as state producers tapped into technologies such as TMRs, BST and timed A.I. programs.

Only recently have Wisconsin cow numbers begun to rebuild. They are still not at the levels of 2001, but each monthly milk production report shows gains over year-earlier levels. Most of these gains have come from dairy expansions, with herds growing from 100 cows to 350 and on up. And yes, CAFOs have played a large, and I dare say, an important role in that increase.

Without these increases, Wisconsin’s famed cheese industry would not have been able to grow. And grow it has. Unlike Western cheese expansion, which has generally opted to build mega-plants that require 3 to 6 million lb. daily intakes, most of the Wisconsin expansion has come in hundred thousand pound increments. Rather than mass produce mozzarella and cheddar, these Badger State expansions are in specialty cheeses. The result was a two-fold, win-win: An expansion of markets for Wisconsin milk and a local, lower cost alternative to imported specialty cheese from Europe.

Yesterday’s protesters complain that their opposing viewpoints are not being heard by state government officials. But in just about every case, when protests are heard by independent review boards or by Wisconsin courts, the cases are found in favor of the sited livestock facilities. If the protesters ever were to prevail, they would shut down commercial dairy operations and along with them, the very infrastructure that provides a market for all sized dairy farms. 

 

It’s All about Dairy Efficiency

Sep 28, 2010

Last week’s announcement that fluid milk’s carbon footprint is a miniscule 17.6 lb. of carbon dioxide (CO2) equivalent per gallon is good news for the dairy industry.

Extrapolated, that means dairy’s contribution to greenhouse gas (GHG) emissions in the United States is a paltry 2%, with dairy production accounting for three-fourths of that. The rest comes from processors and consumers.

When Greg Thoma, a University of Arkansas chemical engineer who specializes in GHG modelling started the study three years ago, he thought herd size and region of the country would be big factors in dairies’ carbon footprints.

“As we did the analyses, those became a weak hypothesis,” he says. “What we really discovered is that how a farm is managed is much more critical than where it is located or how big it is.”

The critical finding of the study is the large variability among farms, says Erin Fitzgerald, VP of sustainability for the Innovation Center for U.S. Dairy. (The Center funded the study.) The wide range in feed efficiency and manure management offer ways to improve both emissions and often the bottom line. As feed efficiency increases, less land, energy and fertilizer are needed to produce each gallon of milk while less manure and enteric methane is produced.

Dairies which graze animals for much of their feed intake do have slightly higher carbon footprints. But there is large variability, with the most efficient graziers having fewer emissions than the lowest efficiency confinement operations.

And this brings us here to World Dairy Expo this week. Expo is the largest concentration of dairy technology at one show at one time in the world.

Dairy vendors from around the globe are here to showcase their wares, be it semen from Italy or robotic milkers from Sweden or new, high yielding forage varieties from the United States.  Commercial dairy producers have the opportunity to learn about new technologies that can improve product productivity and profits while reducing costs and carbon footprints. Graziers have their own Grazing Pavillion, where the latest in grazing technology and forage varieties are showcased. Here at Expo, everybody wins when everybody learns from each other.

If you can’t make it to Expo, Catherine Merlo and I will be your eyes and ears. We’ll be covering the show from dawn to dusk each day, attending seminars on lowering feed costs, managing manure digesters and getting the most out of genomics in sire selection. We’ll also be going on virtual farm tours that highlight new dairy facilities and use technology to manage reproduction and new software to track transition cow performance.

We also have some two dozen meetings set up with dairy companies and trade associations to learn more about new product announcements and new policy development.

To get this latest information, simply check your e-mail each morning for your World Dairy Expo Special Edition e-newsletter. We’ll bring you the latest news plus video from the seminars, press conferences and reactions from dairy producers themselves.

If we don’t see you at Expo, we’ll see you virtually here through this newsletter. World Dairy Expo is all about doing dairy better. Better for the cows. Better for the consumer. Better for the globe.

Will Dairy Concentration Continue?

Sep 27, 2010

At least one factor will slow the trend. And it won’t be dairy policy.

 
“Past performance does not guarantee future results.”
 
That warning, which leads off every stock portfolio and mutual fund offering, is pretty sound advice when looking at the future structure of the U.S. dairy industry.
 
Yes, consolidation has occurred at breathtaking speed, documented by a USDA-National Agriculture Statistic Service announcement last week. But there’s at least one factor I believe will slow the trend. And it won’t be dairy policy.
 
But first some background. Despite last year’s Depression-like economic conditions in the dairy sector, 500-cow and greater operations account for 60% of U.S. milk production. That’s an astounding 54% increase in market share since 2001. And the biggest farms, those with 2,000 cows or more, saw their cow numbers and share of milk production shoot up 150% from 2001. Actual number of 2,000-cow operations climbed from 325 in 2001 to 740 in 2009.
 
The other clear trend: All Western states, with the exception of Montana, North Dakota and Oklahoma, saw gains in milk production this decade. The entire southeast quadrant of the country, in contrast, saw milk production declines.
 
So will these trends continue? It’s a mixed bag. California has shown resilience in getting more milk per cow as feed costs shrunk over the summer. But California cow numbers continue to erode, going from 1,760,000 head in January down to 1,745,000 in August. New Mexico has shown no growth in cow numbers. But Idaho (+22,000 cows), Arizona (+11,000 cows), Washington (+6,000), Texas (+5,000 cows) and Oregon (+4,000) more than make up for these losses. On balance, Western states are up 33,000 cows this year.
 
The Midwest is a mixed bag as well. Michigan is the big gainer, up 6,000 cows since January. Wisconsin is up 3,000. Minnesota has held serve, but Iowa has shed 7,000 cows. Illinois and Ohio have each lost 2,000. Add it up, the Midwest is 1,000 head below breakeven since January.
 
The odd thing is that much of the support for supply management programs is coming from the West (OK, California) and pockets in the Northeast. Many (can I say most?) in the Midwest abhor supply management. The longer term trends show pockets of the Midwest beginning to reclaim market power. Wisconsin’s milk production is up 14% since 2001, though it still lags in cow numbers by nearly 60,000 compared to 2001. Much the same is happening in Minnesota, South Dakota, Michigan, Indiana and Ohio.
 
Without consensus on supply management, the Costa/Sanders and the Specter/Casey bills are dead-on-arrival in Congress. A survey of Western United Dairymen members in California is illustrative.
 
A majority of those responding support supply management, but 86% don’t want it to be controlled by the government and they don’t want it to be mandatory. That’s an oxymoron. Without a government, mandatory program, you really don’t have supply control.
 
So what will put the squelch on dairy expansion? Access to capital. Lenders have gotten burned big time through the Great Dairy Recession. They’ve allowed many of their underwater clients to continue milking with the simple hope that prices will continue to allow their clients to cash flow and begin to recoup equity losses. Pulling the plug simply complicates the problem because the sale of one dairy affects the asset valuation of all dairies on their books. The sale of a few jeopardizes the solvency of all. The points being:
 
1.      Underwater dairies are trying to simply reach the surface. Further expansion is not, and will not be, in the cards for years to come.
2.      Dairies with equity will need a lot more equity if they wish to grow. Thirty-percent equity positions after expansion is no longer tenable—if it ever was. Forty percent will be bare minimum; 50% will be the threshold for those without a stellar track record.
 
Yes, some dairies will find ways to continue to grow. Look for more off-balance sheet gimmicks like equipment and cattle leasing. But these techniques usually work only on the margins because they’re often a last-resort financing option.

Dairy to Blame for Beef Drug Residues

Sep 13, 2010

Cattlemen are none too pleased that these residues continue to bring scrutiny and give beef a bad name. It’s not only a public relations issue for the cattle industry but one with very real food safety concerns too.

 

Drug residues in beef, particularly dairy beef, are receiving additional scrutiny by the Food and Drug Administration (FDA), animal welfare (rights) groups and even the occasional cowboy.

The reason is pretty simple. Drug residues continue to pop up. One might argue that the number of violations is miniscule—404 residues in Arizona, California, Idaho, Oregon and Washington from July 2009 through June 2010. But the numbers also tell this: 83% of those violations were found in cull dairy cows and another 11% from bob veal calves.
 
In other words, some 95% of Western drug residues are coming from the dairy industry, and the FDA is taking names and publishing this list of offenders. Animal welfare groups are also starting to issue press releases and name names. Cattlemen are also none too pleased that these residues continue to bring scrutiny and give beef a bad name.
 
Yes, this is a public relations issue for the cattle industry. But it also has very real food safety concerns, says Dale Moore, director of Veterinary Medicine Extension with Washington State University. She spoke at last week’s NMC regional meeting in Grand Rapids, Mich.
 
The two leading drugs found in dairy cows were penicillin (102 of the 337 violations) and Flunixin (Banamine) (65 of the 337 violations). People allergic to penicillin can react with an allergic reaction, particularly difficulty breathing, but also can experience nerve damage, severe inflammation of the large intestine, swelling of the lips, tongue or face, bleeding and diarrhea. Residues of Flunixin can cause fecal blood, ulcers, and death of kidney tissue.
 
This is serious stuff, folks. Dairy producers have a moral and ethical responsibility to ensure these residues do not occur.
 
There are financial ramifications as well. “Not only do producers face the lost value of the market cow, but their violation becomes public and they could lose the slaughter route for their removals,” says Moore. In other words, you could lose your ability to market cull cows.  
 
So why do residues continue to occur? The reasons vary, but most of it boils down to failure to follow label directions, poor record keeping and failure to observe required withdrawal periods.
 
Banamine’s label requires intravenous injection. “But many people give the drug incorrectly in the muscle,” says Moore. “When this happens, a much longer withdrawal time is needed before the tissues no longer have a residue.”
 
For penicillin, higher, extra-label dosages are often (usually) given “without using an extended withdrawal time,” she says.
 
Even drugs that have short or zero milk withhold have meat withhold times that producers might not be aware of or ignore. Examples: Excede has a meat withdrawal of 13 days, Naxcel four days, Excenel three days Spectramast DryCow 16 days and Spectramast Lactating, two days.    
 
Another potential cause of residues is antibiotics in vaccines. The antibiotics are there to prevent microbial growth in the vaccines during storage. But if cattle are shipped immediately after vaccination, residues can pop up in their carcasses. Dairy producers simply need to be aware of this potential. 
 
Everybody (supposedly) knows how to avoid residues. But, just in case, here’s a quick review:
 
1.      Have individual animal identification and specifically identify treated animals.
2.      Read the drug label.
3.      Follow the label dose and administer correctly.
4.      Withhold marketing the animal for the number of days specified on the label, or in the case of extra-label use, the days specified by your veterinarian.
5.      If the dosage or route of administration is different than on the label, this extra label use requires a valid Veterinary-Client-Patient-Relationship. This means your vet has assumed clinical responsibility for the animal, he/she must have sufficient and direct knowledge of the animal your treating, you agree to follow his/her directions and that the vet is available for follow-up evaluations.  
 
For additional information, and for a decision tree for sending cows to slaughter, click here.   Most of the information is also available in Spanish.
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