Archive for June, 2009

Riding the milk price roller coaster

Examine existing protocols to maximize return on investment

(Part 1 in a series from Pfizer Animal Health)

 

By John Lee, DVM, Pfizer Animal Health

 

Selling milk can feel much like riding an amusement park ride. Last year, record high milk prices had the dairy industry at an apex. This year, dairy producers are left wondering how they can make it through the year. Steep ups and dramatic downs – so goes the milk price roller coaster.

Uncertain economic conditions are forcing producers to tighten their belts and some to ponder their future. “I have observed that most dairies have sustained losses in this downturn per cow each month due to low milk demand,” says John Lee, DVM, Pfizer Animal Health. 

 

John Lee, DVM, Pfizer Animal Health

John Lee, DVM, Pfizer Animal Health

To combat these losses, producers need to examine how they run their dairy and if there are ways to make the process more efficient. “You want to maximize income and minimize losses,” Lee says. Before doing anything drastic, producers need take the time to ensure any operational changes will not have negative long-term ramifications. “The last thing you want to do is make any changes that will reduce production,” he says.

 

Examine nutrition expenses

On most dairies, feed constitutes the single biggest cost. Reexamining feed protocols is something producers should do, with the help of their nutritionist, to find possible cost savings opportunities while still meeting the special nutritional needs. Because feeding precision is so crucial, producers need to determine if the current daily total mixed ration (TMR) is being built meticulously and nothing is being wasted. 

Pulling or reducing trace mineral vitamin packs may not have an immediate impact on animal health or performance but in the long-run, it can reduce animal performance and create health problems that become very costly. Jerry Olson, DVM, MS, senior veterinarian for Pfizer Animal Health says, “Cows further out in lactation may not need as much protein and as much energy, so there may be an opportunity to reduce costs,” Olson says. “It is better to target milking herds with multiple, precise rations, rather than one ration fits all.” 

Other things to keep in mind are as simple as making sure there is no wasted feed and working to feed for fewer refusals. “Most producers feed for a 5% refusal rate,” Olson says. “If that’s the case, can they work to take that down to a 1% refusal rate? Be aware that this is a fine dance. Make sure that the cattle aren’t underfed, which would limit milk production.”

Producers should never fall into the temptation of doing something drastic with feed. “I have seen producers try to get by with just hay and corn silage,” Olson says. “This practice is guaranteed to reduce milk production.” 

Drastic changes to feed will become an expensive decision if it impacts the ability of the early fresh cow to attain peak production and maintain persistency. Lowering the overall lactation curve will place a dairy at a disadvantage once an upturn in milk prices returns. 

 

Cull unprofitable cows

Examining cows on an individual basis rather than on the herd level can help determine which animals are underperforming. “It’s worth taking a closer examination at particular cows,” says Mark Kirkpatrick, DVM, MS, Pfizer Animal Health. “An evaluation routine with computer software allows producers to enter different parameters that will assign a relative value, value of a pregnancy and break-even milk for each cow in the operation.” This process allows producers to cull those cows that are least profitable.

By assessing the profitability of every cow, producers can input operation costs for feed and maintenance, and assess the value of replacement heifers, cull rates and milk production. If a cow isn’t profitable, a producer may be better served to part ways with that animal. “It’s important to keep all stalls filled with productive cows,” Kirkpatrick says. “By refining individual measurement, producers can determine if a particular stall is better filled with a replacement heifer than a low-performing mature cow.” 

Milk production is also affected by overstocked operations, where pen density is at its maximum or more. “On dairies that I have worked with, we have found as more individuals were removed and operations moved closer to proper stocking density, they actually didn’t sacrifice milk and even picked up milk production with fewer mouths to feed,” Kirkpatrick says. 

 

Don’t cut reproduction programs

Producers should never skimp on reproduction efforts for short-term cost-cutting gains. “Dropping reproduction programs to use a bull is never a good move,” Lee says. “All the work invested in training to execute a synch program is lost during the switch, and that reinvestment needs to happen again when milk prices go back up.”

Furthermore, bulls rarely impregnate cows as quickly as a good artificial insemination (AI) program. Never assume that the virgin bull added into the operation is ready to go. Unless each bull is subjected to a breeding soundness examination, it may never be realized how many bulls fail the test for mechanical, poor sperm count or morphology or infectious disease reasons. Trichomoniasis is alive and well and that virgin bull shouldn’t be considered risk free. Genetic’s of the offspring may also be affected since a good AI program allows producers to pair each cow to the appropriate genetics.

 

Review milk quality efforts

Producers must take advantage of milk quality premiums by lowering their SCC levels. Improving milk quality through the reduction of mastitis incidences in the herd can lead to better bulk tank scores. Even though some processors have discontinued or reduced milk quality bonuses, this does not mean producers should cut back on milk quality. 

“When there is more milk than processing capacity, as is currently the case in many areas, some producers may lose a home for their milk,” says Kevin Zieser, Quality Milk Manager, Pfizer Animal Health. “Producers should be aware that several processors are currently ranking producers based on milk quality and cheese yield. Those producers with poor milk quality or components will be the first ones to be let go.”

If component (protein/fat) premiums are available, producers can take advantage of these even if production is capped.

 

Managing the fresh pen

In the lactation curve, fresh cows always give the most milk. Producers should work to maximize peak performance in each cow. Reducing the number of stale cows at the end of the curve by culling those low-producing cows can also have a positive effect on a herd’s lactation curve.

There is always a danger when cutting back fresh cow treatment protocols. Animal health costs account for less than 5% of a producer’s expenses, and yet the outcomes have an impact on lactational milk production, reproductive success and udder health so there is not a lot gained by cutting back in this area, Kirkpatrick says. “Producers could maybe get away with it, but if disease happens, they could be digging themselves out from the repercussions for a long time,” he says. “Higher SCC counts, poor reproduction and a drop in milk production are difficult to turn around for the positive.”

 

Savings in labor

Producers must question whether there is a current service they pay for that their own workers could possibly do. Most real success on the dairy is associated with doing the simple work well. Prioritize training and review standard operating procedures (SOPs) with milkers, feeders, fresh pen managers, calf managers and maternity pen workers to increase operational efficiency. Best of all, no capital investment is required for this.  

 

Conclusion

Producers should not be reactive to low milk prices without thinking about the long term first. “Producers shouldn’t dairy dramatically differently in good times or bad times. We know there will be an upswing in prices. You need to be ready for it,” Lee says. The health and productivity of the cows will prolong losses if big changes are made during a period of low milk prices. “The best dairy producers I know are the ones who do things consistently and are poised for price recovery.” 

 

 

The ‘top 10’ marginal milk quick tips

 

By John Lee, DVM, Pfizer Animal Health 

 

All dairies may lose money in periods of extremely low milk prices. From my observations even the best-run dairies are experiencing losses. During rough economic times, producers may feel compelled to reevaluate protocols and procedures to see if there are ways to cut costs.

Here are 10 tips that producers can look at when reevaluating their dairy during a downturn:

1. Don’t do anything that will reduce milk production per cow.

2. Cull unprofitable cows especially if they are overcrowded.

3. Take advantage of milk quality premiums by lowering SCC. This also should increase production per cow. 

4. Don’t skimp on reproduction for short-term cost-cutting gains vs. long-term losses. Getting cows pregnant is still the No. 1 priority. 

5. Transition cow management becomes more critical to production, reproduction and culling success.

6. Delay long-term capital improvements.

7. Try to determine a break-even cost/cwt., and turn that into a break-even milk production value.  

8. Feeding precision is crucial. Are the people involved in our feeding operation building the daily rations meticulously? Are they weighing out every ingredient? 

9. Decrease shrinkage in the feeding program. Dairies frequently waste feed by the ton, while feedlots usually only waste feed by the pound. Are we being diligent about feeding cows only what they need? What feed is left?

10. Stay positive. Producers shouldn’t dairy dramatically differently in good times or bad times. There will be an upswing in prices and you need to be ready for it.

 

 

FYI

• John Lee, DVM, Pfizer Animal Health. The Pfizer Animal Health Dairy Wellness Plan is a 365-day approach to managing your dairy operation that focuses on the health of the dairy animal, the economic health of the dairy and the proper use of animal health products leading to a safe and healthy food supply. Pfizer Inc. is the world’s largest research-based pharmaceutical company, is a world leader in discovering and developing innovative animal vaccines and prescription medicines. Pfizer Animal Health is dedicated to improving the safety, quality and productivity of the world’s food supply by enhancing the health of livestock and poultry; and in helping companion animals live longer and healthier lives. For additional information on Pfizer’s portfolio of animal products, visit www.PfizerAH.com


 

7/09 MARKETING: Don’t get complacent on feed prices

 

By Matt Mattke

The late April to May rally in the entire grain complex rejuvenated the bullish psychology for a lot of market participants. Many ending stock projections for corn and soybeans for the coming year are striking fear into people that we may possibly run out of corn and/or soybeans if there is a poor crop.

With poor crops, we do not deny that grain stocks could get down to very low levels. But first, we cannot base feed marketing decisions on weather events that have not yet and may not ever occur.

Also, supply and demand numbers can be tweaked to make any argument.  A couple bushel change in yield here, a few more or less million acres here, and demand up or down here, and the ending stocks projections can vary greatly to fit the person’s bias.

Therefore, in this article we are not going to inundate you with a mess of fundamental data.  We are going to outline what we are seeing from a technical standpoint that argues a return to $2.50/bushel corn futures, $6.50/bushel bean futures and $3.50/bushel wheat futures.

The first chart below is a daily combined grains continuous chart. It is derived by adding the front month corn contract price, the front month soybean contract price, and the front month wheat contract price. This collective price essentially creates an index. A number of things stand out to suggest that a cyclical top has been reached, and that this bounce since the December lows is a rally in an overall longer-term bearish market. 

 

Chart 1. Daily combined grains continuous chart. It is derived by adding the front month corn contract price, the front month soybean contract price, and the front month wheat contract price. This collective price essentially creates an index.

Chart 1. Daily combined grains continuous chart. It is derived by adding the front month corn contract price, the front month soybean contract price, and the front month wheat contract price. This collective price essentially creates an index.

One, we see a massive double top.  The first high was reached in March, and the second run at the March high that failed was in June. A double top was confirmed once the “neckline” at the April and May lows between the two tops was broken through to the downside. Since the December low, grain prices have rallied back in an A-B-C correction pattern that re-tested the “neckline” resistance and failed. This occurrence is almost text book in nature and suggests the completion of a bear market rally.

Two, volatility measures are still historically high. In the second chart, and in the bottom box within the second chart, there is a volatility measure.  Volatility has come down since mid 2008, but is still historically high. A look back from 2009 to 1978 shows that major bull runs start from low volatility. Any rallies that occur at high volatility levels don’t last and are not long-term bull rallies.

 

Chart 2. Volatility measure.

Chart 2. Volatility measure.

Three, past rallies in grains were exhausted after an $8.00 to $10.00 move on average. Since the December low, grains rallied $8.11, and then pulled back.

 

Bottom line, do not get complacent about the downside on grains.  If you have purchased any feed inputs for fall 2009 to fall 2010, you must get put option coverage in place immediately. Put options protect the feed you purchased against a drop in prices.  At the time this article was written (June 25), corn futures are at $4.04/bushel, soybeans at $10.08/bushel, and soymeal at $309.50/ton. Remember, these prices are still historically high, and put options would be beneficial in the event that corn does go to $2.50 and soybeans to $6.50, which would mean $180.00 soymeal.

 

FYI

Matt Mattke

Stewart-Peterson

Market360® Adviser

E-mail: mmattke@stewart-peterson.com
Phone: 800-334-9779 
Web site: www.stewart-peterson.com.

7/09 PEOPLE POWER: Consider a non-financial “raise” this year

By Robert Milligan

Few employees of dairy farms or other businesses will receive an increase in their salary or wage this year due to the continuing economic crisis in both the dairy industry and the national economy.  I have been calling it “Turbulence squared.”   I do not personally know anyone receiving a salary or wage increase.

Does that mean owners can do nothing to “compensate” their employees for their continuing hard work and dedication to the farm/business?  The answer, of course, is a resounding “NO!”

We begin by recognizing that for everyone , owners and employees alike, “compensation” – what we take home from work – has two components:

1) Financial compensation – salary/wages and benefits – that we have agreed is unlikely to increase much, if at all, this year. 

2) Non-financial compensation. Anything that enhances job satisfaction is a form of non-financial compensation. Research increasingly suggests job satisfaction is enhanced by a) success in one’s job, b) engagement in the success of the business and c) anything that increases trust in the business itself, business leaders and coworkers.

The real problem or dilemma today – or maybe even tragedy – is that in most businesses, including farms, non-financial compensation is declining.  As financial stress and uncertainty have encompassed almost every business, job satisfaction and team spirit have declined.  Employee trust in their employer may well be at an all time low.  Recent research found that only 20% of employees trust the organization that employs them.

As with most bad situations, there is a silver lining.  You have the challenging opportunity to capitalize on this difficult situation (“Turbulence squared”) to build a potentially lasting trust with your employees.  Here are four suggestions to increase non-financial compensation for your employees: 

1.  Let them know how the farm is doing.  It is no secret to your employees that this is a challenging time for all dairy farms.  They hear it in the local press, they hear it in community discussion, and they hear it from you.  Unless you are telling them otherwise, they are probably questioning the future of your farm and thus their job security.  Although this is a difficult time, most dairy farms will survive and return to profitability.  If you farm is one of these, let your employees know.  If your situation is tenuous, your employees may well be willing to sacrifice to help you survive.  Remember, in most casesour preference for news is: good news, bad news and lastly, no news.  We as human beings are likely to imagine and begin to believe worst case scenarios in uncertain situations with a void of information. 

2.  Provide clarity (“chalking the field”).  I recently visited with a dairy farm manager who was frustrated that one of his employees did not call him when the employee discovered a cow that was unable to get up.  I encouraged him to talk to the employee.  During the discussion, he realized that he had never clearly communicated when or how to contact him in such a situation.  We all have a tendency to assume that others – family members, friends, partners, employees – understand clearly even when they really do not.  Especially in our current uncertain environment, clarify of rules, expected behaviors, job responsibilities and procedures/protocols is extremely important.  Be clear. Explain why. And then ask questions to ensure that there is clarity.

3.  Help your employees succeed.  Building on the previous point, apply the need for clarity to performance expectations.  Most of us feel the most success when we meet or exceed a previously set expectation/goal.  You need to

a) have clearly established performance expectations – milk production, calf mortality, SCC, feed intake, etc.

b) engage everyone in meeting and exceeding these expectation – success, and

c) work with your employees to set performance expectations for themselves.  You then need to provide training, coaching, feedback, support and encouragement to enable them to success.

4.  Improve communication.  It is amazing how often we talk but do not clearly communicate.  The best place to start to improve communication is to be a better listener.  Great listeners are fully engaged in what is being said including watching body language and catching the tone of the voice.  They then take the time necessary to fully understand what was said and respond thoughtfully.  Asking questions that show interest in your employee (How is your family doing? What are your children doing this summer/) and that show your interest in their ideas for the dairy (How would you do this? What are your ideas to improve?) build trust and respect.

 

Conclusion

A.  The key to employee job satisfaction is being proactive – not reactive — in your interactions with them.  Prevent and handle issues early instead of constantly reacting to problems.  Great employee management is not too unlike excellent herd health – prevent and correct problems.

B.  This is an incredibly frustrating time for all of us in the dairy industry.  Working to refrain from taking this frustration out on others (family members, friends, employees) is a difficult but crucial undertaking.

C. Increases in non-financial compensation – job satisfaction – will almost certainly also lead to greater employee productivity.

 

FYI
Robert Milligan 
Senior consultant,
Dairy Strategies LLC

E-mail: rmilligan@trsmith.com
Phone: 888-249-3244, ext. 255
Web site: www.dairystrategies.com.

Michigan agriculture industry supports proactive, aggressive stance on animal care

LANSING, June 26, 2009 – Several members of Michigan’s agriculture community provided testimony in support of House Bills 5127 and 5128 which would ensure that holistic and definitive animal care standards are established in state law for farm animals raised in Michigan, and the standards can be modified with public input to adapt to evolving science.

The bills are sponsored by Reps. Mike Simpson (D-Jackson) and Jeff Mayes (D-Bay City) and have the support of a broad-based agricultural coalition that includes the Dairy Farmers of America, GreenStone Farm Credit Services, Michigan Agri-Business Association, Michigan Allied Poultry Industries, Michigan Cattlemen’s Association, Michigan Corn Growers Association, Michigan Equine Partnership, Michigan Farm Bureau, Michigan Milk Producers Association, Michigan Pork Producers Association, Michigan Sheep Breeders Association, Michigan Soybean Association and Michigan Veterinary Medical Association. The legislation also has the support of the Michigan Department of Agriculture (MDA).

“The agriculture community respects that some consumers want reassurance that farm animals raised for food are well cared for. This legislation validates the ethical standards demonstrated by Michigan’s livestock farmers and assures families that the meat, milk and eggs on their tables have been raised with the highest safety and accountability standards,” said Sam Hines, executive vice president of the Michigan Pork Producers Association.

Many livestock sectors already adhere to national animal care standards, but standards are still being developed for some species. House Bills 5127 and 5128 would require that animal care standards be adopted and enforced on Michigan farms with the aid of third-party audits and penalties to bring farms into compliance.

Given the state’s limited budget resources, coalition members say House Bills 5127 and 5128 are smart to propose using existing scientific standards that are nationally accepted by food companies and retailers as a foundation to build from, and requiring that the standards be reviewed once every five years – at a minimum – to ensure that the latest and most advanced standards are followed in Michigan.

They also say forming a citizen-based Animal Care Advisory Council to review the standards and make recommendations to the Michigan Commission of Agriculture and MDA for ultimate adoption is only appropriate, as the council provides a public structure and the Agriculture Commission and MDA are the state entities charged with oversight of production agriculture and food safety. To ensure that the council is “evenly stacked” for fair representation of all stakeholders, only two farmers directly involved in production agriculture would be appointed. The remainder of the council would be comprised of veterinarians as well as individuals representing an animal welfare agency, animal welfare research, restaurants and Michigan’s food processing and retail food industries.

“This system would give Michigan the most proactive approach in the nation to making changes to animal care standards and ensure that everyone has a voice,” said Larry Julian, legislative liaison for the Michigan Equine Partnership.

Dr. Janice Swanson, director of animal welfare with the Michigan State University Department of Animal Science, is neutral on the legislation, but in providing expert testimony lent credibility to the utilization of industry standards as a measuring stick for animal care.

“If you asked me 10 years ago I would have said no,” she said, explaining that animal care standards initially started out as industry-led initiatives that were limited in scope. However, as more food companies have taken an active interest over the years, the marketplace has dictated science-based standards and more public input in the process. “So many of the standards in place today are very scientific and multi-disciplinary. They consider all factors from animal behavior to animal health and food safety, and you need this holistic approach.”

Swanson points out that many of the standards that House Bills 5127 and 5128 would codify address animal care for livestock in all types of housing; this includes animals in caged as well as cage-free systems. Legislative initiatives in other states like California have focused exclusively on behavioral freedom and, depending on how the performance standards are legally interpreted, they could conflict with an animal’s natural behavior, she said. For instance, hens are flocking animals, so providing California-raised hens enough room to extend their wings and turn around without touching another hen could prove challenging to meet compliance even under cage-free housing conditions.

Coalition members emphasize that animal care standards mandated by House Bills 5127 and 5128 go beyond emotion-driven agendas that narrowly focus on single issues such as animal housing and farm size.

“They take into consideration everything involved in providing food safety, animal welfare, and a wholesome and affordable food supply,” said George House, executive director of Michigan Allied Poultry Industries.

The proposed legislation doesn’t go to unnecessary extremes but doesn’t under-deliver on animal care either, said Wayne H. Wood, president of the Michigan Farm Bureau.

“The intent of the legislation is sound, and that’s to guarantee the continued care and ethical treatment of all animals in the food chain,” said Wood. “These bills provide a holistic, balanced approach that is good for animals, people, rural communities and our state.”

The House agriculture committee took initial testimony on June 24-25. An identical package of bills, 654 and 655, has been introduced in the Senate by Sens. Wayne Kuipers (R-Holland) and Gerald VanWoerkom (R-Norton Shores). These bills also have the support of the broad-based agricultural coalition, and have been referred to the Senate Agriculture and Bioeconomy Committee for future action.


Tips for managing through low milk prices

You may not control your milk price but you can control milk yield and margins on your dairy, says Michal Lunak, dairy specialist for University of New Hampshire Cooperative Extension. He has these suggestions for producers:
• Optimize forage harvest for lower feed costs and improved bottom line.
• Think about whether removing supplements is a good idea. It may save some money but also reduce milk production and cow performance.
• Carefully evaluate ration changes to avoid saving a nickel while losing a dime. For example, pulling the trace mineral package out of the ration can save you a few cents a cow. But one additional case of mastitis, a drop in conception or more foot disorders can cost you big dollars.
• Consider strategies that maintain high milk yields. High-producing cows convert 1 lb. of dry matter intake (DMI) to 2 or more pounds of milk. At $11 per cwt. milk, an extra 1 lb. of DMI translates to 22 cents more gross margin.
• Aim for a calving interval of less than 13 months to have more cows in early- and mid-lactation.
• Work on a successful transition cow program. That avoids metabolic disorders and helps cows reach higher peak milk production.
• Maintain consistent feeding and management programs to achieve higher milk persistency.
• Aggressively raise and breed heifers with a target of 23 to 24 months at first calving. One month over 24 months costs you $50 minimum in profit, according to research.
• Increase milk fat and protein test to raise your milk price.
• Work for lower somatic cell count to earn quality bonuses.
• Aim for a milk yield per pound of DMI greater than 1.3, for Holsteins.
• Estimate milk production potential to see where you stand: Subtract 13 pounds of dry matter (maintenance) from total DMI. Multiply remainder by 2. For example: 50 lbs. of dry matter minus 13 lbs. equals 37 times 2. That equals a minimum of 74 lbs. of milk production potential.

Will consumer spending patterns change?

While consumer confidence is at its highest level since November 2008, that doesn’t mean consumers are spending more. According to a new Rabobank podcast, consumers, who once focused on premium products, now place a premium on value – and are unlikely to revert once the recession recovers.

“An economic recovery would help loosen up consumer purse strings, and improve some of the consumer confidence levels,” said Rabobank’s Food & Agribusiness Research and Advisory (FAR) executive director Stephen Rannekleiv. “But many of the pre-recession spending trends were somewhat unsustainable. I think consumers have changed.”

In the podcast,  Rannekleiv discusses how the economy has altered buying habits – creating more price sensitive consumers, who are looking for less expensive alternatives, reducing spending and increasingly using coupons. However, the key becomes whether these trends are secular, in other words permanent; or cyclical, meaning likely to revert to previous patterns once the economy improves.  (The full podcast is available online at rabobankamerica.com/rabocast or directly at http://news.rabobankamerica.com/pr/rb/electronic/rabocast_consumerbehavior_v1.mp3.)

“This increased price sensitivity of consumers comes on the heels of an unprecedented trend of trading up. Where you saw consumers willing to spend more for small luxuries and premium products,” said Rannekleiv.

“The problem comes in the investments that were made to take advantage of these trading up trends,” said Rannekleiv.

While consumers were trading up, companies were able to profit from investments in acquisitions, as well as brand positioning and image. However, with consumers migrating to less expensive options, returns on those investments are now not meeting expectations. How companies respond – whether waiting out the down turn or making changes to their products and brand position to become more value oriented – depends on whether they believe the recession is cyclical or secular.

“(However) those views can be somewhat fluid as more information becomes available, as the recession drags on, and as we see these trends continue,” said Rannekleiv.

For example, one food retailer invested in improving the consumer shopping experience and expanded their premium product mix – taking advantage of the premiumization trends in order to differentiate themselves from low-cost retailers. Because this investment had proven so successful, their initial response was to wait out the downturn. However, as the recession lingered, they have become more aggressive in their pricing in order to maintain their customer base.

 “Food and beverage companies need to be prepared for more frugality from consumers,” said Rannekleiv, who estimates that frugality could be an important consumer trend for the next five years.

In addition to higher unemployment rates, much of this change can be attributed to the loss of wealth U.S. households have experienced from the declining stock market and housing values. From the third quarter of 2007 to the fourth quarter of 2008, U.S. households have lost nearly 20% of their wealth and those losses continue to decline.

“Moving forward, consumers are starting to replace some of that lost wealth by increasing their savings, and some of this increase in savings is often cited in one of the causes in the dip in consumer spending,” said Rannekleiv.

Savings rates had dipped to unsustainable lows before the recession – reaching into negative numbers in 2005. Today, that number is around 4%, but still less than half of savings rates in the 1980s (around 9%).

“I think this increase in savings rate is something we can expect longer term, and wouldn’t expect it to drop dramatically any time soon,” said Rannekleiv. “So, I think we can expect this to stay on as a more permanent trend.”

As the economy turns around, consumer confidence may increase further and the level of spending may also increase. However, we may not return to past levels of spending.

“Even an improvement in the economy may bring back consumer confidence, but I don’t think … a strong level of consumer confidence (will) bring back some of those spending patterns prior to this recession,” said Rannekleiv. “I think consumers have changed.”

Managing in Difficult Times: Profitable Practices for Tough Times

(Part of a series of articles produced by University of Wisconsin-Extension agents and specialists to address farming in difficult times)

When times are tough, farmers often ask: “What are the most profitable practices under these conditions?”

The answer usually disappoints those who ask it because practices that maximize profitability when “times are good” are the same practices that help maximize profits (or in many cases minimize losses) when “times are tough.”

“I think this surprises people because, when times are good, one can achieve a satisfactory profit level without using all of the profit maximizing practices,” said Tom Kriegl, Farm Financial Analyst, Center for Dairy Profitability, University of Wisconsin-Madison/Extension.
“When times are good and profit margins are generous, people may become complacent and adopt practices that seem convenient or appealing even though the practices reduce profitability. When these practices become routine, it is easy to think of these less profitable practices as essential.”

It’s also important to recognize that the components of a practice that contributes to profitability can change.

For example, feeding the least cost-balanced ration (compared with feeding an unbalanced ration and without regard to cost) is a practice that helps maximize profits or minimize losses under all conditions except one — when revenue fails to equal or exceed variable cost. However, the components of the least cost-balanced ration can vary radically as prices of the ingredients and the product change.

We must also recognize that tools that maximize profit can be underused. For example, feed testing, milk testing, soil testing, and record keeping and analysis are all tools that can help maximize profits. Yet, some managers pay for these tools but ignore the information these tools
provide. Misusing or not using such tools will actually detract from profitability.

In summary, the practices and tools that contribute to profitability are similar in both good economic times and bad. However, the way managers implement these practices and tools may change. To maximize profitability, managers must pay attention to details and make
adjustments to these practices to fit their circumstances. Following are more specific comments about adjustments.

1. Analyze, measure, test and monitor. You can’t manage what you can’t measure.
2. Review all of your practices – including financial and production.
3. Return to the basics – the practices that serve best in most conditions.
4. Focus on input-output relationships.
5. Pay attention to details.
6. Eliminate wastage wherever you can whether it is reducing feed spoilage or the avoidance of spilling manure on the road where it does no good.
7. Use decision making tools such as those provided by UW-Extension.
8. Monitor your cost of production on a regular basis. On many farms it should be done monthly.
9. Focus on the controllable larger expense items first. Even among dairy farms that raise much of their feed, purchased feed is usually the largest cost item. Other cost items that rank high for most dairy systems in most years include depreciation, labor, repairs and interest.
When costs are categorized in a different way, the cost of raising or buying replacements is also a very large cost. The same is true for all the costs associated with raising feed. Don’t get over focused on the smaller costs without having these larger costs under control.
10. Defer or pass up capital investments unless they are really needed now. However, if your debt is low, you intend to farm for several years, and you have cash reserves or a good credit rating, you might find bargains for capital items and interest rates. Even then, limit capital
purchases to items that really are needed in the long run. An item like
a low cost labor efficient milking parlor could fit into the need category even now.
11. It is appropriate to time capital investments for tax management purposes, but few if any capital investments can be justified on tax benefits alone.
12. Make sure your debt is productive debt—debt that supports investments that will pay for themselves in a reasonable time frame.
13. Check opportunities to refinance for lower interest rates but make sure that refinancing costs don’t nullify the reduced interest rate. If refinancing converts your interest rate from fixed to variable, be aware of what that could mean.
14. Take advantage of government programs such as MILC.
15. While one needs to survive the short run to have a long run, don’t lose sight of the long run.
16. While many farm families routinely minimize family living costs, that isn’t the case for everyone. Consequently 2009 would be a good year to reduce or defer large discretionary family living expenses such as new cars or houses.
17. Maintain adequate two way communication with your farm staff (whether paid or unpaid) to ensure proper training and functioning of and to minimize turnover of the labor force.

For assistance in making these tough decisions, contact your UW-Extension county agent, your Farm Business and Production Management Instructor in the Technical College or the DATCP Farm Center at 800-942-2474.

To access more information and/or tools to help analyze your situation, link to the Extension Responds web page at:www.uwex.edu/ces/ag/farmingindifficulttimes.html

Purdue study: CAFO impacts a mixed bag in communities

 

Large-scale animal production in eight Indiana counties is carried out by a mostly younger, educated work force and seldom violates state environmental regulations.

However, fiscal and zoning issues surrounding confined animal feeding operations (CAFOs) are more complicated, according to a study by four Purdue University researchers.

“Community Impacts of Confined Animal Feeding Operations” examined 50 CAFOs in Benton, Cass, Huntington, Jasper, Jay, Randolph, Wabash and Wells counties, which have the largest concentration of the animal facilities in the state. The 2007-08 study looked at demographics, labor, impacts on local government budgets, environment violations, and county planning and zoning.

The four-member Purdue research team will present the full study tonight (June 18) in a statewide broadcast carried live at Purdue Extension offices and other locations in 21 Indiana counties.
CAFOs are livestock production operations where hundreds or thousands of animals are raised in buildings or similar enclosed facilities. There are approximately 645 CAFOs operating in Indiana.

“The expansion of CAFOs in Indiana has been controversial. The purpose of this research was to learn more about the issues and the impact of CAFOs on local communities,” said Janet Ayres, an agricultural economist and research team leader.

Ayres said the study, funded entirely by Purdue Extension and the university’s College of Agriculture, only focused on swine and dairy CAFOs. Researchers interviewed CAFO operators and county government and highway officials and pored over county tax documents and environmental records. Findings present a snapshot of the confined feeding segment of Indiana’s animal agriculture industry and are not intended to represent the industry as a whole, Ayres said.

About a third of the CAFO operators within the eight counties studied were interviewed. On average, the operators are a young and well-educated group compared to the general farming population, said Roman Keeney, an agricultural economist. Most reported the process for selecting a location for their operation – commonly called siting – as not being problematic, he said.

“A majority of surveyed operators reported that they faced little in the way of opposition in the siting process, although some operators indicated their siting process was opposed by individuals or organized groups,” Keeney said. “Evaluating their reception since beginning operation, 80 percent of surveyed operators rate community response as mostly positive or all positive.”

Surveys indicated that CAFO operators make large feed and supplies purchases both locally and within Indiana and make greater use of hired labor than typical farm operations, Keeney said. Wages average $12.38 per hour, compared to an average farm wage of $8.50 an hour.

“This hired labor runs the gamut from hired managers to part-time help, with wages that tend to be higher than average agricultural wages and comparable to county averages,” he said.

On the environmental front, the Indiana Department of Environmental Management cited 39 rules violations at animal feeding operations in the study counties over a 13-year period ending in 2008. Fifteen of those were issued to CAFOs.

Twenty-five of the violations occurred during manure application on cropfields.

“Environmental violations by CAFO operations were uncommon,” said Tamilee Nennich, an animal scientist. “In the counties in the study, less than 1 percent of CAFOs were cited for water quality violations. There was also little evidence to suggest that the size or type of operation predicts an increase in the chance of an environmental violation occurring.”

Operators with rules violations paid fines ranging from $1,000 to $25,000, with most between $5,000 and $10,000, Nennich said.

The impact of CAFOs on local government budgets and taxes was mixed, said Larry DeBoer, an agricultural economist.

“An analysis of county taxes and budgets shows that some CAFOs generate enough added tax revenue to cover the added costs they create, and some do not,” DeBoer said. 

Part of the CAFO tax bills provide tax relief for existing taxpayers, he added.

Zoning and land-planning issues were even more complex. While all eight counties have zoning ordinances that apply to land use, there are differences in how each county approaches CAFOs, Ayres said.

“It ranges from making decisions on a case-by-case basis to clearly defined development standards and land-use zones,” she said.

The two-hour broadcast will be recorded and available for viewing online Friday (June 19) by logging onto http://www.agecon.purdue.edu/extension/programs/cafo.asp.

In addition, the research team is writing Extension publications based on the study. Those publications will appear on the Purdue CAFO Web site at http://www.ansc.purdue.edu/CAFO/.

For more information, contact Ayres at 765-494-4215, ayres@purdue.edu; Keeney at 765-494-4253, rkeeney@purdue.edu; Nennich at 765-494-4823, tnennich@purdue.edu; or DeBoer at 765-494-4314, ldeboer@purdue.edu.

Changing climate changing agriculture

By Susan Harlow
Editor, Eastern DairyBusiness 

There will be winners and losers among regions from the effects of global climate change, according to a new report released June 16 by the  U.S. Global Change Research Program.
Changing temperatures, precipitation patterns and levels of carbon dioxide in the atmosphere will all impact agriculture. U.S. temperatures will rise 1.5 degreees in 50 years, but they will rise more in the Midwest in winter – about 7 degrees, said the report.  Northern latitudes will receive more precipitation; the southern latitudes, less.
The Midwest and Northeast will see heavier precipitation, including more downpours. But the Southwest and InterMountain West will suffer more drought. The West will be hit particularly hard by lack of water – by 2050, the Colorado River won’t meet the demand for its water 90% of the time.
The effect of climate change on the western Corn Belt is hard to predict, since it sits between an increasingly wetter East and increasingly drier West, said William Hohenstein, director of USDA’s Global Change Program Office.
Milk production in confined dairy operations will decline as higher temperatures cause heat stress, especially at night.  The option for producers: modify facilities, the report said.
More rain, heat and CO2 will boost the number of pests and invasive weeds that move north, such as kudzu. They’ll increase yields of some crops, but not all. Yields of corn, beans wheat and rice will drop. Grain, soybean and canola will be especially susceptible to higher nightime temperatures.
To adapt, farmers may change planting dates or switch varieites, the report said.
More heavy downpours will delay spring planting, kill more crops as fields flood and increase soil compaction. Wet conditions at harvest can cut yields.
Forage quality will decline as CO2 levels climb.
The changes are not a matter of if, but when, the authors said. “Human-induced climate change is a reality and is underway,” said Jane Lubchenco, administrator of the National Oceanographic and Atmospheric Administration and Undersecretary of Commerce.

 

Milk goes ‘green’: Today’s dairy farms use less land, feed and water

Dairy genetics, nutrition, herd management and improved animal welfare over the past 60 years have resulted in a modern milk production system that has a smaller carbon footprint than mid-20th century farming practices, says a Cornell University study in the Journal of Animal Science (June 2009).

“As U.S. and global populations continue to increase, it is critical to adopt management practices and technologies to produce sufficient high-quality food from a finite resource supply, while minimizing effects upon the environment,” says Jude Capper, lead author and a recent Cornell post-doctoral researcher working with Dale E. Bauman, Cornell Liberty Hyde Bailey Professor of Animal Science.

The study, “The Environmental Impact of Dairy Production: 1944 compared with 2007,” shows that the carbon footprint for a gallon of milk produced in 2007 was only 37 percent of that produced in 1944.  Improved efficiency has enabled the U.S. dairy industry to produce 186 billion pounds of milk from 9.2 million cows in 2007, compared to only 117 billion pounds of milk from 25.6 million cows in 1944.  This has resulted in a 41% decrease in the total carbon footprint for U.S. milk production.

Efficiency also resulted in reductions in resource use and waste output.  Modern dairy systems only use 10 percent of the land, 23% of the feedstuffs and 35% of the water required to produce the same amount of milk in 1944.  Similarly, 2007 dairy farming produced only 24% of the manure and 43% of the methane output per gallon of milk compared to farming in 1944.

Joining Capper and Bauman on the paper is Roger A. Cady, Cornell ’74, MS ’77, PH.D. ‘80, a scientist at Elanco. Research fund were provided to Bauman as a Liberty Hyde Bailey Professor and to the Cornell Agricultural Experiment Station. Capper has recently joined the faculty at Washington State University as assistant professor. 

The study was first published in the Journal of Animal Science online in March 2009.  It is available at: http://jas.fass.org/cgi/content/abstract/jas.2009-1781v1.

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