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October 2011 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

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

Why Dairy Reform Is So Darn Hard

Oct 24, 2011

Sen. Bob Casey’s “Dairy Advancement Act of 2011” limits costs by limiting the safety net to the first 150 cows in a herd.

At first glance, Sen. Bob Casey’s (D-Pa.) dairy reform package, “The Dairy Advancement Act of 2011,” seems like a common sense compromise for dairy policy reform.
    
Besides Federal Order reform and more mandatory price reporting by processors, it offers producers a choice: Milk Income Loss Contract (MILC) payments or Livestock Gross Margin-Dairy (LGM-Dairy) insurance.
 
Heck, even processors sing its praises: “We applaud Senator Casey’s inclusion of critically needed risk management tools, particularly his call for an expansion of the LGM-Dairy program. . . . LGM-Dairy is the type of program that our government should encourage,” says Connie Tipton, president and CEO of the International Dairy Foods Association.
 
Upon further review, of course, the devil is in the down and dirty.
 
The Federal Order reforms Casey proposes actually mirror what the National Milk Producers Federation (NMPF) originally proposed in the first drafts of its “Foundation for the Future” proposal.
 
These changes make a lot of sense because they take away a lot of the barriers to creating new products. Eventually, these changes will have to occur if the U.S. dairy industry hopes to compete internationally long term.
 
But National Milk and Rep. Collin Peterson, D-Minn., backed away from these reforms simply because they would become a major distraction in getting any bill passed.
 
The Casey bill would also require stepped-up price reporting on a daily, weekly and monthly basis. Dairy folks in Pennsylvania, who were the main architects of the Casey legislation, seem obsessed with price reporting and market transparency.
 
One could argue, I suppose, that more frequent reporting will make for more accurate prices. Whether that makes a penny-a-pound’s worth of difference is debatable.
 
The biggest difference under Casey’s bill is the option producers have between MILC and LGM-Dairy.
 
If producers choose the LGM-Dairy provision, they would be eligible for insurance subsidies for the first 3 million pounds of annual production with a $1.50 deductible. Like MILC starting next Sept. 1, that would offer a safety net for the first 150 cows in a herd.
 
The problem, of course, is that herds larger than that get only partial coverage—and yet these larger herds produce in excess of 75% of the milk in this country.
 
The NMPF’s “Foundation for the Future” (FFTF) program, embodied in the “Dairy Security Act of 2011,” (DSA) offers margin insurance to herds of all sizes provided they also agree to production limits in times of tight margins.
 
The DSA production limits are needed to rein in the cost of the program. Casey limits costs by limiting coverage to the first 150 cows.
 
DSA offers a safety net to everyone. Cooperatives recognize the MILC program leaves some 75% of milk production unprotected—a huge risk for producers and co-ops alike.
 
If federal spending wasn’t an issue, dairy policy would be easy. But deficit spending is no longer an option.
 
Anyone can propose change; getting that change enacted into law is an entirely different piece of cheese. That’s what makes dairy policy so darn hard.

Animal ID Delays: Playing with Fire

Oct 10, 2011

Last Friday’s announcement by USDA that it was extending the comment period for 30 days on its animal disease traceability proposal is just one more delay in this "Waiting for Godot" melodrama.

The Farm and Ranch Freedom Alliance and R-CALF USA, among others, requested the extension to conduct an economic analysis of the proposal. But some within the animal identification community also wonder if this is merely a delaying tactic that could push implementation into 2013, even 2014.
 
By delaying the comment period now to Dec. 9, USDA’s analysis of those comments could push publication of the final rule well into spring. Then, there will be the inevitable additional comment period—30, 60, 90 days—for folks to respond and object to the final proposal. And given the history of groups such as R-CALF, it’s a safe assumption that they will object.
 
By then, we’ll be well into summer and in the heat of the 2012 election campaign. USDA will be unable to move the proposal forward in the midst of the campaign. And so we’ll have to wait for the election results come November.
 
If President Obama does get re-elected, there’s the very real possibility of turnover within USDA’s political appointees. It happened when President George W. Bush was elected to a second term; it likely will happen if President Obama somehow gets re-elected. That will lead to the inevitable hold on any new regulations as the new guys review and stamp "OK" on any proposed regs. 
 
And if the Republicans gain control of the White House, you can be assured there will be major delays in federal rulemaking. First, a new Secretary of Agriculture will have to be named and approved. Then his team will have to be put in place. And then that team will have to review any proposed rules in the hopper.
 
All of this delay is playing Russian roulette with American access to global markets. Take the case of Paraguay, which discovered foot-and-mouth disease (FMD) just three weeks and a day ago. Immediately, Paraguay was forced to suspend beef exports to 20-plus countries. Even if it gets the outbreak under control, it likely will be a year before exports can resume, given the bureaucracy of world animal health requirements.
 
Opponents to national animal identification bury their head in the manure and say it will never happen here. But that’s what they said about the 2003 Christmas surprise when a dairy cow in Washington state was discovered with bovine spongiform encephalopathy (BSE). It could happen again; it likely will happen again.
 
Having disease trace-back capability is absolutely critical to containing disease outbreaks. Even USDA’s current watered-down animal disease traceability proposal is better than nothing. And yet opponents want to delay even this weak approach.
 
Dairy producers are enjoying unprecedented strong beef prices this year, allowing them to almost buy springing heifers for the value of the cull cow they’re replacing. Yes, the small beef-cow herd and the drought in Texas have a lot to do with these strong prices. But strong meat exports also play a critical role.
 
Loss of those markets will mean hundreds of dollars per head less revenue. And I don’t even want to think about the loss of dairy product exports should something such as an FMD outbreak occur here. Delaying a national animal traceability program is not only playing with fire, it’s the very definition of insanity.
 
More information on USDA’s animal disease traceability proposal can be found here.

Dairy Price Crash Unlikely

Oct 09, 2011

While some pundits and producers worry that 2012 dairy markets could be a repeat of 2008-2009, déjà vu all over again is unlikely. That’s despite the fact that exports are approaching 13% of U.S. milk production, up 20% from where they were in 2008.

"We don’t have a 2008-2009 collapse ahead of us," says Alan Levitt, contributing editor to Dairy Today and longtime dairy trends analyst.

Levitt is the first to admit that recent global dairy market news has not been encouraging. And dairy futures through the first half of 2012 aren’t all that encouraging either. There are three main reasons for concern:

• Global milk supply in the major exporting countries (EU-27, U.S., New Zealand, Argentina and Australia) is up 2.6% year-to-date over a year ago, or 8.6 billion pounds through July. "We could end up with 12 to 14 billion pounds more milk from these top five exporters for the year," Levitt says. "The European Union is up 2% alone, which hasn’t happened since quotas were imposed there in 1983."

• Global imports have slowed, particularly in the second and third quarters of 2011. Part of that is due to global economic concerns. Additionally, importing countries had bought ahead earlier in the year and now have ample supplies. Plus, there’s just more milk available and buyers are waiting for further price reductions before they make new orders, Levitt says.

• New Zealand has been pricing its dairy commodities aggressively, knowing it has increased production that it must dispose of at a time of softening markets. The fall of the year is when Kiwi production peaks, often resulting in seasonal pressure on prices.

• Both China and Russia have backed off on their dairy purchases in the second quarter of 2011, accounting for much of the slowdown in global trade.

But it’s not all doom and gloom. "The fundamentals of dairy markets are still sound, and dairy is more entrenched in diets than ever before," Levitt says. "The South Koreans, for example, won’t stop eating their pizzas just because of a gloomy economic outlook."

Even though dairy imports have backed off, they are still at high levels historically. At the end of the second quarter of 2011, imports were more than 900,000 metric tons. A year earlier, when imports were setting records, the world was importing 830,000 metric tons. So even though sales have dipped from a peak that approached 1 million metric tons this summer, they are still running nearly 10% higher than the previous peak.

Global dairy demand is also now more sustainable at higher prices. Levitt notes that powder, cheese and whey prices are still running 20% to 30% higher than the five-year average (butter prices are 60% higher) and yet purchases remain strong.

U.S. manufacturers are also becoming more reliable global suppliers. They realize that the U.S. dairy price support program no longer presents a viable, sustainable floor. "The dairy price support program is not an option this time," Levitt says. So manufacturers are doing everything they can to meet and sustain overseas customer demand.

Plus, softening prices should bring some buyers back into the market. Those who have been waiting to buy are starting to see pricing opportunities.

Levitt isn’t saying there’s nothing to worry about in world dairy markets and the global economy. But there’s no reason to panic, either. And given the uncertainty of everything else heading into 2012, that may be as good as it gets. Let’s hope he’s right.

 

South Korean Free Trade Agreement Could Boost Dairy Sales

Oct 07, 2011

U.S. dairy exports have been on an incredible upward journey this decade, growing from $30 million in annual sales in mid-decade to possibly $250 million this year. Through July, some $145 million worth of U.S. dairy products has entered South Korean ports.

Amazingly, U.S. cheesemakers have shipped more cheese to South Korea since July than they have sent to Mexico, traditionally the No. 1 buyer of U.S. cheese. And if Congress passes a free trade agreement (FTA) in the next few weeks, those cheese exports to South Korea will likely be sustained and even increase. According to estimates by the International Trade Commission, U.S. dairy exports—cheese, milk powder, whey—could quickly climb to an astounding $380 million in annual sales.

Recall that President Barack Obama submitted the South Korean FTA to Congress this past Monday. South Korean President Lee Myung-bak is scheduled to visit the White House on Oct. 16, and the hope is that Congress will pass the FTA in time for President Obama to sign the agreement during that state visit.

"We are hopeful the Congress will pass the agreement quickly," says Margaret Speich, vice president of communications and membership for the U.S. Dairy Export Council (USDEC).

Inking the deal is important on several fronts, Speich notes. Foremost, a signed FTA will allow momentum to continue to grow in moving more U.S. cheese, powder and whey products to the Korean peninsula. Last week, for example, a USDEC trade mission went to South Korea in anticipation of a deal being signed.

The mission included 33 participants representing 33 U.S. dairy companies. Those companies are reporting back that they have either signed or anticipate contracts for an additional 6,000 tons of dairy products valued at $27 million over the next year. And that’s just one trade mission’s work.

As importantly, a U.S.-South Korea FTA will keep the U.S. in the game as global competitors vie for Korean business. On July 1, the European Union signed its own FTA with the Koreans. Australia hopes to sign an agreement by the end of the year, and New Zealand currently is in negotiations. All of these competitors are going after market share that was built primarily by U.S. efforts, spearheaded by USDEC and its member companies. So it’s imperative the U.S. is correctly positioned to stave off those interlopers.

The final point is that world dairy trade has softened this quarter, due to early buying, concerns over the global economy and increasing world milk production, up 8.6 billion pounds in the first seven months of 2011.

Inking a U.S.-South Korea trade deal would help shore up some of the losses. Let’s hope Congress can stop its squabbling and can get the deal done.

 

NMPF Gives Up On Federal Order Reforms

Oct 06, 2011

H.R. 3062, the Dairy Security Act of 2011, which is the latest variant of the National Milk Producers Federation's "Foundation for the Future" plan, essentially gives up on Federal Milk Marketing Orders reform.

Way back when, the very original plan was to do away with the "higher of" Class III and IV prices to set the Class I mover, use a competitive price survey to discover the Class III price average to set the Class I price, eliminate Class III make allowances, remove minimum prices for Class II, III and IV, eliminate negative Producer Price Differentials and essentially go to a two-class system of fluid and manufacturing milk.

As Jim Tillison, NMPF senior VP of marketing and research says, it wasn’t complete reform but it went from A to M. The Dairy Security Act of 2011 back tracks, and goes from A to maybe D. It essentially eliminates all of that with the exception of new price discovery mechanism for Class III (whatever that might end up to be) and the elimination of cheese make allowances.

To be fair, Federal Order reforms were the toughest part of the FFTF negotiations. They took the longest to negotiate, and were the last part of the package released. Early on, producers and co-ops in areas heavily dependent on fluid sales raised a ruckus over elimination of the "higher of" component to set Class I prices. They argued this one component would take $200 million out of producers’ pockets (though it could be argued that lower fluid prices might stimulate higher fluid sales.) In any event, the "higher of" component was compromised away early in the process.

Then, this summer, NMPF put on a 13-city road show at which some 1,400 producers and industry folks got to weigh in on the FFTF package. Rep. Collin Peterson (Rep., Minn.) also put out his draft proposal that pretty much mirrored the proposed Federal Order reforms in FFTF.

"NMPF advocated for these Federal Order reforms, but we [and Congressman Peterson] had to be sensitive to producer concerns," says Jerry Kozak, NMPF President and CEO. He and other NMPF officials put on a 90-minute press briefing here at World Dairy Expo yesterday.

Kozak readily admits the Dairy Security Act is a much watered down version of the originally envisioned changes. But he says it still does away with cheese make allowances. Combined with a competitive price survey, that could raise cheese prices the equivalent of 70¢/cwt.

"We still continue to support Federal Order reforms. But you reach a point that if you eliminate the dairy price support program, the Milk Income Loss Contract program and the Dairy Export Incentive program that provide little support, you might have achieved enough with this bill. The Federal Order reforms we were proposing may have been too much at one time for everybody to grasp," he says.

Perhaps so. And perhaps it is what is needed to coalesce dairy producer support around this bill.

But it is an opportunity lost. And it gives dairy processors another target at which to aim their opposition. 

The complete version of H.R. 3062 can be found here.

 

Animal Welfare Is Good for Heifers and Your Bottom Line

Oct 05, 2011

A healthy heifer is a happy heifer -- and, oh, by the way, a profitable heifer.

Deep down, every dairy producer knows that. But sometimes, missing some details in heifer management puts animals -- and ultimately profits -- at risk.

Maureen Hanson, the project manager working with the Dairy Calf and Heifer Association (DCHA) standards committee, sat down with me yesterday here at World Dairy Expo to go through the recently released Gold Standards III. The dairy calf and heifer welfare standards were released a few weeks ago. But unless you go through them line by line, there are some details that even the most experienced dairy producer or heifer raiser might miss.

The standards were developed by an impressive list of heifer growers, prominent dairy veterinarians and industry experts who specialize in heifer care. The chairman of the group is Vance Kells of Circle Bar Heifer Ranch in Satanta, Kan. Veterinarians Sam Leadley, Gary Neubauer and Bob Patrick also served on the committee. 

I point this out to reassure producers reading these guidelines that they were not done in an afternoon over a pot of coffee. A lot of thought, care and science were brought into the discussion, along with the recognition that the standards must be based on common sense and achievable in a commercial farm setting. "What we find in virtually all cases is that production practices that keep animals’ best welfare interests in mind also result in the best production outcomes," Kells says.

And while there is overlap between these new welfare standards and the previous Gold I and II production standards for calves and heifers, Gold III is written specifically from the standpoint of animal welfare.

Gold III covers veterinarian involvement, colostrum management, housing, nutrition, handling, transportation, vaccination, drug therapy, parasite control, elective medical care and euthanasia.
For example, in the area of housing, Gold III has specific ventilation rates for young calves, calves two to six months and heifers six months and older. For young calves housed indoors, fans should be sized to provide 100 cu. ft. of air movement per minute (CFM) in hot weather, 50 CFM in mild weather and 15 CFM in cold weather. Calves two to six months of age require ventilation rates 20% to 30% higher.

Gold III also supports the "Five Freedoms" of animal welfare developed by the Farm Animal Welfare Council of the United Kingdom. These are freedom from hunger and thirst; freedom from discomfort; freedom from pain, injury and disease; freedom to express normal behavior; and freedom from fear and distress.

Following those guidelines, one of the more controversial recommendations in Gold III is that calves up to two months of age be housed so they can turn around and have at least 24 sq. ft. of resting space. That would move the industry away from narrow crates that often prevent the animal from grooming itself. But doing so would move the industry toward accepted global standards, Hanson says.

Another crucial area is access to water. Even though producers think they are providing adequate water, for example, researchers have found it can be limited when calves transition into super hutches where they are housed in larger groups for the first time. Gold III recommends one linear foot of water intake space for every 10 animals in the group, or at least one automatic waterer for every 20 animals, with a minimum of two waterers per group with an adequate water supply.

With calves and heifers now being transported hundreds of miles to specialized growers, the transportation guidelines endorse and support those offered by USDA. That means newborn calves should be dray, able to stand by at least 24 hours old prior to transport. For trips longer than 11 hours, tandem drivers should be employed and avoid extra hours on the truck during mandated driver rests. If traveling more than 24 hours with cattle four months or older, they should unload the animals at a clean facility for a feed and water break of at least five hours.

Producers need to review these standards and make adjustments to their own heifer programs. The time to do it is now, and voluntarily. Your calves and heifers will thank you. Plus, the entire industry will be ahead of the curve when animal welfare advocates decide standards should be imposed on the industry. If that time comes, the industry can rightly say it has already adopted standards that work.

 

 

Capital for Labor

Oct 04, 2011

The greatest dairy show on earth opens today in Madison, Wis., which is still arguably the heart of the U.S. dairy industry. It certainly will be the heart of the global industry these next five days.

World Dairy Expo has evolved from a cow-centric event to a much broader audience that encompasses all aspects of the dairy industry. While many visitors take a load off and take pleasure watching the bovine beauties strut their stuff in the Coliseum each day, the commercial exhibits are where business gets done for commercial producers.

This year, 130 new exhibitors will be offering their products and services for the first time. Plus, 120 international exhibitors from 28 countries will be on hand to round out the 800 exhibitors at the show. 

Every one of these exhibitors offers products that help produce milk better, faster, cheaper—keys to surviving this now globally competitive industry. Dairy producers have been trading capital for labor for past century. But this year’s show will take that effort to a whole new level.

Dairy equipment companies such as DeLaval and Lely will be exhibiting refinements to their  robotic milkers that take automated milking systems (AMS) to a step above existing systems. These innovations are being driven by acute labor shortages across the globe, where milking labor is difficult to find and horrendously expensive when it does walk through the door. U.S. producers are taking note, particularly as legal Hispanic labor is becoming increasingly difficult to document and mandatory E-Verify efforts ramp up.

DeLaval will be introducing its Automated Milking Rotary parlor, a 24-stall internal carousel that uses four robots to prep, attach and remove milking units. While the unit is designed for mid-sized dairies up to about 1,000 cows, you can bet DeLaval engineers are dreaming even bigger for large U.S. dairies.

Lely is introducing its Astronaut A4 individual stall robotic milker, which can measure milk temperature, color, conductivity, fat, protein, lactose and individual quarter somatic cell counts. Lely engineers say the A4’s low-obstacle design allows for smooth cow movement into and out of the stall to optimize cow flow and throughput. To date, Lely has installed more than 10,000 automated milking systems worldwide, and as proof to that claim, published sales materials in 15 languages. Lely is also hosting a virtual farm tour of one of its AMS on-farm installations this Thursday at noon.

These are just two examples of the kind of exciting dairy technology that will be exhibited at World Dairy Expo. Hopefully, you’ll be able to attend and "kick the tires" on this new equipment. If not, Dairy Today staff will be providing daily coverage of product announcements, dairy news and issues through this e-newsletter and at www.dairytoday.com.

To plan your trip, thumb through your August issue of Dairy Today, which includes the World Dairy Expo Official Program. Or scan our virtual edition here. If I don’t see you today around the show, I’ll talk to you tomorrow. Enjoy World Dairy Expo 2011!

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