Archive for March, 2009

Maintaining a high IHG is key to profit

By Susan Harlow

You’ve heard it before – maintaining a strong internal herd growth (IHG) is the key to profitability. 

“Growth in a producer’s volume of sales is one of the few ways to stay ahead of the inherent inflation that takes place in the fixed cost side of their business,” says Gary Snider, farm business consultant with Farm Credit of Western New York.

Add to that the fact you can probably raise your own replacements more affordably than anyone else because you already have inputs such as labor, says Snider. And internal herd growth is a good way to build your net worth without borrowing money. 

Sexed semen has made all the difference in the internal herd growth (IHG) rate on Andersonville Dairy LLP.

Through the early 2000s, the ratio of heifers born on the dairy ran 33 to 38%, which drove down the dairy’s IHG. “We’d always done a good job of raising heifers, but four years ago, we began using sexed semen,” says co-owner Mark Rodgers. “Since Jan. 1, 2006, we’ve had 300 heifer calves hit the ground and I’ve lost one.” Low calf mortality rate also contributes to a strong IHG.

 Rodgers is a partner with Ted Young in the 200-cow dairy in Glover, Vt.  Their herd average is 25,685 pounds.

In 2001, the dairy had about100 head. Rodgers and Young began growing the herd size, to 160 last year. After installing a new parlor last December, they purchased 40 heifers to replace low-end cows and to maximize the parlor’s capacity. Of 101 cows that entered the herd in 2008, 60 were raised internally, for an IHG of 25%. This year Rodgers and Young are milking 200. 

Last year,  67 heifer calves were born to the 68 cows and heifers bred with sexed semen (with a conception rate of 55%). Of a total of 153 cows and heifers bred with unsexed semen, 74 had heifers and 79 had bulls. 

On the other side of the coin, heifers bred with sexed semen had a higher number of stillborn calves. Of the 141 calves born to heifers, 10 were born dead, all from sexed semen sires. Rodgers says he doesn’t know yet if it was a fluke, especially since he makes sure to use sires with a high calving ease score. “Most DOAs were in heifers that had easy calving,” he says. “We did all we could but don’t know the reason, so we don’t know how to manage around it.”

For the last year and a half, Rodgers has been using sexed semen on cows with a history of conception on first and second service, with no calving difficulties and in strong standing heat. Eighty out of 155 cows are now pregnant with sexed semen. Being choosy about which cows to use sexed semen on saves him the cost of an open animal and expensive semen.

So is sexed semen worth it? “Absolutely,” Rodgers says.

However, this year he has cut back on its use. “It’s the economics and the fact you can’t get rid of the heifer calves at a good price,” he says. “Last year I could sell any heifer, but not this year.” 

Last year, the bumper crop of heifers allowed the dairy to sell 25 heifers and 12 cows for dairy. Only two heifers were sold due to injuries; one died of pneumonia. Of 72 cows that left the herd last year as involuntary culls, most were for injuries, feet and legs, and mastitis and reproduction problems. 

Rodgers makes sure replacements are treated well. He feeds and manages for  a 1,300-pound heifer after first calving, with an average age at first calving of 23 months.

Rodgers uses a synchronization program, timed AI and CIDRs on cows more than 60 days days in milk that haven’t shown good heat, and based on a veterinarian’s recommendations. “We prefer to use and breed off natural heats,” he says. Activity monitors that came with the new DeLaval parlor have made a difference. “That’s improved heat detection quite a bit, especially on synchronized animals,” Rodgers says. “It’s too early to tell about a better pregnancy rate, but it has definitely improved heat detection.”

Raising their own replacements doesn’t just save Rodgers and Young money in animal purchases. “I’ve found over and over and over again that the animals we purchase don’t perform within 80% of what ours do,” Rodgers says. “The way we raise them they are trained to eat, to thrive, to be almost overachievers.”

Jeremy Michaud had growth on his mind when he returned from to his family’s dairy, Clair-a-Den Dairy, in E. Hardwick, Vt., Cornell in 1999. After they built a new 100-stall barn, Michaud asked his father, Denis Michaud, if they could buy some cows.  “They’re right there,” his father said, pointing to the barn.  “You’ve got to go make them.”  

With the exception of some heifers with a purchased farm, Michaud and his brothers have not bought a cow. Yet the dairy has expanded from 140 milking head to 500 today, with an IHG of 16% projected for this year. 

Michaud runs the dairy along with brothers Daniel and Travis, and Travis’ wife, Crystal. They have 550 milking cows and a total of 1,100 head, some housed on a nearby farm where Crystal is herdsman. With the help of seven full-time employees, they milk the main herd 3X and fresh cows 4X. To cut costs, the Michauds just began milking 2X at the second farm. Their double-8 herringbone  parlor runs round the clock. Herd average is 26,000 pounds.

“At our present rate, we could add 90 cows a year,” Michaud says. We’ve been marketing heifers the last four years, but I need to do more of it.”

Michaud says he’s always followed the same philosophy – take care of the cows, and that’s called for some experimentation.  “I’ve had more ideas that panned out than failed,” he says. It helps that he has a good instinct for cows, with the ability to observe them and intuitively know what’s going on. 

And because his brothers concentrate on outside work with crops and machinery, Michaud can put his full attention on the  cows, employees and facilities. 

These are factors in the dairy’s strong internal herd growth:

• Cull rate. It runs 14 to 22%, and today is 20%.  Michaud’s rule for culling is “three strikes and you’re out.”

“The price of milk will force us to cull a little harder,” he says. “But we have a lot of heifers to calve.”

The 250-stall barn that houses 400 cows ties older facilities together with newer ones. Most stalls are bedded with sand; some with mattresses and sawdust.  The overcrowding rate for the fresh-cow group stays at 30%; close-up is the only group that Michaud doesn’t overcrowd.

The keys to overcrowding successfully are knowing when you’ve gone too far and minding the details.  “If we pay attention to the details, we get away with it,” Michaud says. “Cows in a challenging environment adapt well to similar environments throughout their lives.”

Being patient with sick and injured cows is a big part of a low cull rate. “Sometimes a cow just needs time,” Michaud says. “You don’t expect to have back surgery and be out running a marathon the next day.  It’s amazing how cows can heal themselves.”

Even though barns are overcrowded, there are options for the less-than-healthy cow. He’ll put her in with the fresh cows or, if there’s room, in the hospital barn.

The involuntary culls are spread evenly among most risk factors. But feet and legs are Michaud’s biggest pet peeve, so he does his own hoof trimming on a regular schedule. 

• Reproduction. “Reproduction is as significant to me as production. You have to get cows bred,” Michaud says. “We focus on making milk, but cows are making babies, too.”

“And we’re finding out that without BST, repro is twice as important. We used to be able to keep a cow going a little bit longer; now we have to be more aggressive with our management.”

The dairy’s pregnancy rate is 23 to 30%. But the number that really matters to Michaud is the percentage of cows still open over 150 days in milk. He likes to keep it at 10 to 15%; currently that number 8%. “If I see that start to move, I get nervous. That’s the number I really pay attention to because that takes all the other numbers with it.” Average days open is now 118.

Good heat detection is the key to keeping the number down, and close observation is the key to good heat detection. “I spend 40 to 45 minutes every morning just walking around. I may be vaccinating or doing other things, but I’m physically in the barn, checking for lameness and mastitis,” Michaud says. 

They use a protocol of three shots of prostaglandin at 12 to 18 days apart before first service, and Ovsynch on cystic cows or those that palpate open. They use CIDRs on inactive cows after they’ve been checked at least twice and had no ovarian structures. 

 Michaud learned to palpate from his veterinarian and does his own weekly herd checks,  “That allows me to check any cow any time I want to.”

He has used sexed semen for the last 1 1/2 years – not that he has to, since he has plenty of heifers. But he wanted to see if he could make sexed semen work. “It’s worth the effort, but there is effort,” he says. 

The conception rate with is 45 to 48% compared to 50-plus with non-sexed semen. “We did lose a little bit but not near what people told me I should expect,” he says. 

To use sexed semen better, Michaud changed some management –  observing heifers for heats one extra time a day and dropping from two services to one service. He’s also begun using sexed semen on first-calf heifers but is not having as good luck.

Age at first calving (AFC) is 24 months. It had been as low as 21 to 22 months. “But the heifers aren’t mature enough [at 22 months]– there just isn’t enough animal,” Michaud says. “More make it through the first lactation now.”

• DOA’s. Percentage of stillborns and dead calves under 24 hours of age runs 3-5%. Last fall, Michaud moved the calving pen from the far end of the barn to the other end, beside the farm office, near the milking parlor and where he can see it from his house where he and wife, Leslie, and three young sons live. Now employees walk by continually and can see freshening cows that need help. “I can already tell it’s making a big difference,” Michaud says.

A strict newborn and sick-calf care protocol helps minimize the risk. For all heifers, the mortality rate from 24 hours until they calve is 4%. 

To monitor his cows, Michaud follows a protocol unchanged for 10 years.  From his Westfalia-Surge Dairy Plan program, he generates a list of cows that failed to eat, and he observes them on a daily morning walk-through. He separates some for further examination.

Each Tuesday, he lists on a yellow lined pad cows that need reproduction attention – pregnancy checks, prostaglandin shots, breeding, CIDRs, or to start on Ovsynch. 

Fresh cows are monitored the same way. Data from each list is entered into computer, to provide a summary report.

In the end, it all comes back to patience and consistency. “It bothers me to let things slide, “ he says.

 

 

 

 

Mining your financial data

 Southeast producers can learn more through free project

The Dairy Business Analysis Project (DBAP), administered by the Universities of Florida and Georgia, helps Southeast producers analyze their finances, set future goals and make sound financial decisions. Producers submit financial data such as year-end inventories of cattle and feed, receipts, accounts receivable, accounts payable, prepaid expenses, and expenses; value of assets and liabilities.  

After the information is analyzed, producers receive:

1. Cost of production per hundredweight and per cow, on percentage and real dollar bases.

2.  Costs benchmarked with other dairies in the program.

3.  A balance sheet; income statement; “sweet 16” ratios for liquidity, solvency, profitability, financial efficiency and repayment capacity; profitability statement; equity statement; cash flow statement; and debt analysis.

4. Their business’ strengths, challenges, opportunities and threats.

5. Trends of their business during their years on the program in over 30 critical areas. This allows them to monitor progress, especially in areas important to the individual dairy’s profitability.

 Producers may enroll in DBAP at any time, although spring is the usual time in order to analyze data from the previous year.

The DBAP is open and free to all producers in Georgia and Florida, funded by grants through the Southeast Milk Inc. and a check-off of one cent per hundredweight. 

A preliminary statistical summary for both individual dairies and the whole project is calculated in May or June, and a final towards the end of the year. 

For more information, contact Mary Sowerby, University  of Florida Regional Dairy Extension, 386-362-2771 or email: meso@ufl.edu. Or Albert De Vries, University of Florida Department of Dairy Science, 352-392-5594, email: devries@ufl.edu. Or Lane Ely, University of Georgia, 706-542-9107, email: laneely@arches.uga.edu.

What to do with deadstock

By Susan Harlow

Dairy producers would likely find it more expensive or even impossible to send dead animals to renderers, with a new U.S. Food and Drug Administration (FDA) rule that may go into effect later this year. The rule is intended to enhance the 1997 feed rule banning specific risk materials in ruminant feed to prevent bovine spongiform encephalopathy (BSE) in the human food supply. It forbids cattle older than 30 months of age being rendered for use in animal food, including pet food, unless the specific risk materials – brain and spinal cord – are removed first. 

The rule was to go into effect April 27, but in March, FDA delayed implementation for 60 days and began taking public comment on whether to further delay the effective date. 

According to FDA, the rule would cost U.S. producers a total of $28 to $29 million annually in lower cull cow prices that renderers will pay to offset higher disposal costs, and in cattle no longer sent to renderers.

Renderers are already working to comply with the rule in order to clean out their inventories before the rule goes into effect, says Tom Cook, president of the National Renderers Association. Some are getting out of picking up deadstock altogether. Others will only pick up cattle less than 30 months of age, and they’ll require farmers to produce some proof of age, such as records or using teeth to calculate age. 

Some renderers will continue to take all animals, segregating them by age. If they have the facilities, those renderers will remove the brains and spinal cords from the older cattle, or they may offer alternate disposal. “Obviously, there will be added cost,” Cook says.

It’s good news to livestock and rendering organizations that FDA will delay implementation. “We welcome the chance to make our case for why we oppose the rule,” Cook says. “There’s no scientific justification for it.” 

A patchwork of state regulations covers disposal of deadstock. In some states such as California, which bans burning, burying and, for the most part, composting deadstock, alternatives to rendering are limited.

Other states allow various disposal methods, but usually have restrictions. In Pennsylvania, for instance, producers must dispose of carcasses within 48 hours. In Minnesota, there are strict limits on how close to water supplies dead animals can be buried. “In some areas, it’s not an option,” says Curt Zimmerman, livestock development supervisor, Minnesota Department of Agriculture.

A statewide rendering study group in Minnesota has been looking at the issue since last year. Alternatives will eventually be feasible, such as mobile incinerators or regional composting facilities, Zimmerman says. The industry will find new uses for deadstock that can’t be used in animal feed, such as fertilizer.

Agricultural and environmental agencies in New York and throughout the Northeast are working on the problem, says Jean Bonhotal of the Cornell Waste Management Institute. “With a 4% mortality rate in the industry, that’s a lot of cows,” she says.

 Bonhotal is advising producers of alternatives to rendering, including:

• Burial. Burial is legal in most states but not necessarily advisable, especially in areas like northern New York that have large numbers of dairy animals but little land available that they want to dedicate to animal burial. “If people bury too many cows in one location it concentrates nutrient and pathogens and can cause water quality issues,” she says. In some areas, burial is being offered by private operators, who then may illegally dump the carcasses. But the producer is still responsible – you must know where the mortalities are being buried and that it is a legal operation.  “For your safety, have signed contracts in place with a statement of how and where mortality is being disposed of,” she says. 

• Burning, or incineration. Difficult with large animal carcasses and creates pollution.

• Composting. Legal in all states except California, and in parts of Canada, although regulation varies. The Natural Resource Conservation Service’s standard is an umbrella guideline for all mortality disposal. State standards provide  may provide more pertainent guidance. In Minnesota, Ohio, New York, Pennsylvania, Montana,VT, NJ, VA New Mexico, West VA, and other states, workshops on how to compost deadstock are offered. For detailed info visit http://cwmi.css.cornell.edu/composting.htm#mortalitycomposting

• Landfills. It is “hit or miss” whether landfills will accept mortalities, but they may do so in an emergency, Bonhotal says.

• Dumping carcasses in the back forty. Illegal, dangerous, attracts wildlife and polluting. 

 Producers who need more information should call their local rendering service, Extension service or agriculture department to learn about alternatives are in their states.

 

FYI

  For more information on the rule, go to: http://www.fda.gov/cvm/bse_QA.htm

  Cornell Waste Management Institute has  information on composting, which is widely used, at  http://cwmi.css.cornell.edu/naturalrendering.htm

  A national symposium will be held July 21-23 in Davis, Calif., on carcass disposal including research, treatment options and new  technologies for euthanasia and disposal. Contact: Mark Hutchinson,  University of Maine Cooperative Extension, markh@umext.maine.edu or 207-832-0343. Or Jean Bonhotal, jb29@cornell.edu or 607-255-8444. 

4/09 Come to think of it: Modest proposals

By Susan Harlow, Editor

Eastern DairyBusiness

 

Almost everyone at the Professional Dairy Producers of Wisconsin meeting last month was in a pretty good mood despite the slumping dairy economy. No wonder, according to Gov. Jim Doyle. Wisconsin’s milk output grew 1.6% last year over the previous year. That 2-billion-pound increase in milk  “is filling up cheese plants and creating an optimism for the future,” Doyle said. 

   Meanwhile a USDA survey found that Wisconsin dairy processors invested $1.24 billon over the last five years and plan to spend another $781 million in the next five. (To find more about the meeting go to our website, www.dairybusiness.com, and follow links to PDPW. )

     From Madison, I went directly to Vermont, where a group of Northeast producers brought in speakers to discuss ways to control the sharp volatility in milk prices. Their starting premise: A system based on pooling offers only incentive for each producer to make as much milk as possible all the time. 

    Tops on the Northeast agenda was the Growth Management Plan proposed by California’s Milk Producers Council (MPC). It would assess producers making more than a certain annual growth in milk and return the money to other producers. (Find out more on this plan at: http://www.milkproducerscouncil.org/)

     “In dairy, you can make milk and, as long as someone picks it up, you get your share of the pooled resources,” said  MPC’s Rob Vandenheuvel. “Every incentive is to grow, grow, grow. So we have to change the incentive.” Holstein Association USA is ready to lead the effort for a growth management plan, said CEO John Myer. “But it must be producer-driven.” 

    “We don’t use the Capper-Volsted Act enough because we rely on the government,” said Bob Naerebout, executive director of Idaho Dairymen’s Association, who was at the meeting. “Is it a government program we want? If it’s to keep you and me on the dairy, it’s not happening.” Then Idaho dairyman Jim Stewart proposed contracts between producer and processors that include movers for input cost increases. And there was also a plan to base Class III prices on competition for raw milk in certain regions.

    Clearly, as the milk business continues to change, as products become more differentiated and as production shifts geographically, the old methods for setting prices have become obsolete and unfair. The only way to match milk supply to falling demand is for dairies to go out of business. Whether this is good for an individual dairy or not is moot. What’s certain is that empty dairies aren’t good for processors, communities or the dairy infrastructure – and so ultimately for the individual dairy.

     Counting on CWT to drain the industry of farms when we need less milk is not unlike Jonathan Swift’s Modest Proposal: That the poor Irish sell their children as food to avoid having to feed and keep them.  Also, CWT is a ponderous instrument. By the time it culls a large number of cows, prices may already be headed back up, pointed out Penn State’s Ken Bailey recently.  

    There was a notable absence of Midwesterners at the Northeast dairy summit, but I hope that was because of the conflict with the PDPW meeting.  I’d like to believe that historic friction between the dairy regions can be smoothed out by a pricing system that all agree compensates every producer fairly, based on demand and production costs, while processors can also make an adequate profit.  “Let’s see what we can do for the industry as a whole,” Naerebout said. That’s a sentiment long overdue. 

     There’s no lack of ideas. Perhaps, the dairy industry might find that one of these proposals will fit, as Swift said about his notion: “But, as to my self, having been wearied out for many years with offering vain, idle, visionary thoughts, and at length utterly despairing of success, I fortunately fell upon this proposal [of eating the children], which, as it is wholly new, so it hath something solid and real, of no expense and little trouble, full in our own power…”

Manure handling, gas safety recommendation guide available

A new report prepared by agricultural engineers and farm safety experts examines different manure handling systems in Wisconsin, the dangers presented by manure gas, and offers safety recommendations to keep farmers and their employees alive.

“Although manure is a natural by-product of livestock farms, manure can produce deadly gases that are dangerous and unpredictable,” said Ed Odgers, conservation engineering section chief with the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP) and one of the report authors. “The scale and complexity of manure systems has increased dramatically in recent year. It was time to take a hard look at these systems to identify and address the dangers posed by manure gases.”

The 18-page report, Manure Gas Safety: Review of Practices and Recommendations for Wisconsin Livestock Farms, looks at the potential hazards of different procedures to handle manure on farms. They range from drive-in covered storage tanks to open pits and reception tanks to processing rooms often used with manure separators and digesters.

The report was prepared by a manure safety review team staffed by experts from the state agriculture department, USDA Natural Resources Conservation Service, the Wisconsin Department of Health Services, the University of Wisconsin Madison Biological Systems Engineering and the Waupaca County Land Conservation Department.

One key recommendation in the report is a plan to educate the farm community about the dangers of different manure handling systems and what can be done to limit the potential harm to farm workers or livestock from manure gas. Other recommendations include design modifications, and the addition of safety features to existing systems, and items to include in a safety plan.

“While we have been fortunate not to have any manure gas fatalities here in Wisconsin, they have occurred in neighboring states. These tragedies are preventable with safer system designs, better management practices and increased awareness of theses dangers,” said Cheryl Skjolaas, interim director, University of Wisconsin Center for Ag Safety and Health.

One type of system in particular has drawn the most concern from the manure safety review team. The expanding use of drive-in, covered storage tanks and transfer channels place farm workers in dangerous environments with little opportunity for rescue.

Workers use skid loaders or similar equipment to enter these confined areas that are often located under a barn.

“Safety procedures state that a worker may enter a confined storage area after ventilating and monitoring for gases. The worker should wear a safety harness and rope attached to a mechanical retrieval device like a winch to recover them in the event they are overcome by manure gas,” explained John Ramsden, USDA Natural Resources Conservation Service. “If they’ve gone into an enclosed tank in a skid loader, there’s no practical means to retrieve them.”

These systems need to be retrofitted to limit or eliminate the need for human entry or abandon them all-together. Fortunately, cost share assistance may be available for retrofits, Ramsden said.

State and federal technical standards for manure handling systems will be revised to include required safety designs and an outreach campaign led by the University of Wisconsin has been initiated.

Copies of the report are available on the DATCP web site www.datcp.state.wi.us. Search on “manure gas safety.”

Wisconsin processors invest $1B +

   Wisconsin dairy processors invested $1.24 billon over the last five years, according to a USDA National Agricultural Statistics Service (NASS) survey taken in January and February.
Natural cheese plants accounted for 65% of the total, with companies producing less than 5 million pounds spending more than half of that.
   The plants said they plan to invest another $781 million  in coming years, mostly to upgrade utilities and waste treatment. Nearly 60% said they’ll increase the amount of dairy products they manufacture by up to 25% over the next five years; one-fifth said they’ll grow by more than 25%.
     Processors in the survey said they’ll spend most of their development and marketing funds on developing new products and adding value to their current products.
    Raw milk plants said that finding capital financing, waste treatment regulations, and costs of energy and health insurance were factors most likely to limit profitability. Other plants, which process ingredients such as cream, whey or natural cheese into other dairy products, said energy and health insurance costs would be their limiting factors.

 

Is a milk supply management program needed?

Is a supply management program needed for U.S. milk production? Why or why not?

If yes, outline the program provisions you would propose?

We need supply management, group says

By Susan Harlow, editor

Eastern DairyBusiness

Is supply management an idea whose time has come?
Many of the 250 producers and representatives of dairy organizations meeting Friday, March 20, in Burlington, Vt., think so. Agreeing on a precise plan was more difficult.
The summit was organized by Dairy Farmers Working Together, a group of Vermont producers formed several years ago to work on dairy policy. They plan to meet again in four to six weeks.
Meanwhile, they’re urging all producers to voice their opinions on pricing plans and, they hope, come together behind one to bring to Congress.
Rob Vandenheuvel, general manager  of California’s Milk Producers Council (MPC), outlined the Growth Management Plan that his group has developed. Milk needed to meet demand would be calculated. Then producers would each have an annual allowable growth; they would pay a market access fee per hundredweight for any production over that limit.  The pooled fees would be paid to producers who stayed within their limits.
New producers would pay the market access fee on their first year’s production, which would establish their baseline.
 “In dairy, you can make milk and, as long as someone picks it up, you get your share of the pooled resources,” Vandenheuvel  said. “Every incentive is to grow, grow, grow. So we have to change the incentives.”
Holstein Association USA is ready to lead an effort to put a growth management plan in place, said CEO John Myer. He said CWT isn’t doing enough to drive down supply – it’s time for producers to speak with a united voice on a program that can smooth out price volatility on a national level. “But it must be producer-driven,” he said.
Sybrand vander Dussen, president of the Milk Producers Council, said the current pricing system gives producers no incentive to produce less milk. “Because of the ‘magic’ of pooling, when someone produces more milk, the loss is shared by everyone,”  vander Dussen said. A mandatory plan that reduced the milk supply by just 1 to 2% would be effective, he said.
Jim Stewart, an Idaho producer, laid out a plan for producers to enter long-term contracts with processors,  with movers to adjust prices as input costs change. That would take the shocks out of the market, Stewart said.
The base program initiated by California cooperatives, which assesses farmers who produce more than their allocation, has had a “dramatic impact” on production in his state, said Ray Souza, head of Western United Dairymen, by phone from California. He urged people at the meeting to learn about milk pricing and look closely at the growth management plan, but to finally agree on a plan.
Also speaking were Calvin Covington, CEO of Southeast Milk dairy cooperative based in Florida; Bob Naerebout, executive director of Idaho Dairymen’s Association; and  Roger Allbee, Vermont Secretary of Agriculture.
National Milk Producers Federation (NMPF) was invited but did not send a representative to the meeting. CEO Jerry Kozak told the group that NMPF is focusing on its CWT program and doesn’t want to waste energy on policy efforts that will not work.
For more information on the group’s efforts, go to www.dfwt.org website or email Amanda St. Pierre at astpierre@berkshirecowpower.com

Legislation would crack down on farm payments

U.S. Rep. Ron Kind (D-WI)  introduced legislation to compel USDA to verify farmer income eligibility with the Internal Revenue Service (IRS) and to strengthen penalties for bad actors who intentionally attempt to break the rules.  This bill comes in response to a report issued by the Government Accountability Office (GAO) documenting that thousands of farmers in recent years have received taxpayer subsidies, even though they did not legally qualify for them based on their high incomes. 

USDA Secretary Vilsack announced the agency’s own plans to implement GAO’s recommendations. 

 “I have long contended that the limits on farm subsidies are far too generous, but it is truly outrageous that the federal government has been unable to enforce the rules we already have on the books,” said Rep. Kind.  “I am pleased the new Administration is interested in cracking down on waste, fraud, and abuse, and I look forward to working with them to find the best way to ensure our laws are obeyed and taxpayer dollars are being protected.” 

The report from October of last year documented 2,702 individuals above the previous income cap of more than $2.5 million in annual income who received $49 million in farm subsidy payments from the U.S. government from 2003 to 2006.  With new income caps as low as $500,000 established in the 2008 farm bill affecting even more farmers, enforcement of this rule will prove only more difficult. 

 “Today the House voted to rescind taxpayer-funded bonuses to wealthy businessmen on Wall Street, and I think it is equally important that we prevent millionaire corporate farmers and landowners from reaping huge bonuses in the form of government subsidies,” continued Kind.  “As Americans from coast to coast struggle in this difficult economy, I think we can all agree that the very least we ought to be doing is enforcing the current law on the books to prevent people making more than $1.5 million from taking taxpayer money.” 

Kind’s legislation, which was cosponsored by Rep. Jeff Flake (R-Ariz.), largely mirrors the announced plan of coordination between USDA and the Treasury Department by requiring USDA to submit the names or identifying information of an individual or entity signing up for commodity subsidy programs to the IRS,  which would then use tax records to determine if the individual met the income eligibility requirements.  

Those who are found ineligible would be shut out of subsidy programs for that year and would have to reimburse any payments that may have been made in error.  The bill also strengthens penalties for individuals who falsify documents or intentionally withhold information in order to evade the limits. 

 Rep. Kind also supports President Obama’s attempt to reduce the income cap as outlined in his fiscal year 2010 budget proposal.  He intends to introduce additional legislation soon to reduce the cap to $250,000 in average adjusted gross income, which was a part of the reform amendment he offered to the farm bill in 2007.  

4/09 MARKETING: Three trends to reach horizon

By Matt Mattke

Q:  Historically high input costs and near-all-time low milk prices have a devastating effect on many dairy producers.  How much longer can this gap between costs and revenues continue?  What does that mean for upward milk price potential?

A:  Milk prices remaining below $12.00/cwt., with corn and soy prices over $4.00/bushel and $9.00/bushel, respectively, cannot continue for too many more months.  Bearish fundamental pressures for milk will linger and likely limit the upside on milk prices for the next couple months, but the upward price potential starts to increase substantially starting with the June 2009 contract.

There are three trends that need to be kept in mind when looking at the milk price, and each is defined by a different time horizon.  The three trends are: short-term, intermediate-term and long-term. 

Short-term will be defined as less than a year; intermediate-term will be defined as one to three years; and long-term will be defined as more than three years.

The fall in milk prices is likely near exhaustion.  Some risk remains for the next couple months if seasonal pressure kicks in via a further build in cheese inventories, but the short-term trend is likely to shift from lower trending prices to higher trending prices.  This could entail upward pressure on prices into the third and fourth quarters of 2009.

However, the short-term milk price rally that is likely to come will run into selling pressure from the intermediate trend that will still be down.  The intermediate trend will prevent a return to $19.00-$20.00/cwt. Class III futures prices.  The multiyear (intermediate) downtrend that milk prices are in will likely only allow the short-term uptrend to retrace about 50%-62% of the entire down move from the May 2008 high to the February 2009 low (see chart).

Then the intermediate trend will likely cause milk prices to move lower.  This intermediate or multiyear downtrend will have two potential price objectives on the downside: 1) to retrace 50% of the entire rally from the 2003 low to the 2008 high; or 2)  62% of the entire rally from the 2003 low to the 2008 high (see chart). 

If you are looking for historical evidence in the milk market to compare to the above scenario, look at milk prices from the 1999 high to the 2003 low.  The milk market was in an intermediate downtrend from 1999 to 2003 with a  short-term rally from late 2000 to the middle of 2001.

All of this may not sound like the greatest projection for milk prices going forward, but when the short-term rally comes, it will provide producers with good pricing opportunities.  It will also provide these pricing opportunities at price levels many dollars higher than the $10.00-$12.00/cwt. prices currently being offered in the nearby contract months. (Deferred contract months are already at $14.00-$15.00/cwt., but the chart below is for the second month contract, which is currently April.  This chart represents more nearby contract months and shows that there are dollars of upside potential in a short-term rally in these months).  Due diligence and discipline on the part of producers to sell into this short-term rally will be important because of intermediate pressure that will exist.

As for the long-term trend, the future looks extremely bright for milk producers. New historic high milk prices, well above the $22.50/cwt. high from 2007, are on the longer-term horizon. 

 

FYI

Contact Matt Mattke, Market360® adviser at Stewart-Peterson, via e-mail: mmattke@stewart-peterson.com, phone: 800-334-9779 or visit www.stewart-peterson.com.

 

Figure 1.

Figure 1.

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