Archive for November, 2009

Dairy promotion builds partnerships, opportunities

GRAPEVINE, Texas – The national dairy checkoff program is leading the industry with strategies that make a real impact in the marketplace, both today and in the future, according to dairy producer leaders who spoke to nearly 1,000 producers and other industry representatives at the 2009 National Dairy Promotion and Research Board (NDB)/United Dairy Industry Association (UDIA)/National Milk Producers Federation (NMPF) Joint Annual Meeting in Grapevine, Texas.

“The dairy checkoff is making action plans that stick” in the consumer marketplace, said Paul Rovey, Arizona dairy producer and chair of Dairy Management Inc.™ (DMI), which manages the national dairy checkoff program through funding by NDB and UDIA. Making a real difference requires foresight, collaboration and leadership – all of which are characteristics of today’s dairy checkoff, he said.

In outlining core business principles needed to have an idea really “stick” in the marketplace, Rovey offered the example of the dairy checkoff’s partnership with McDonald’s.

* Benefit to society: With the success of single-serve milk now offered at 14,000 McDonald’s outlets, and 55,000-plus other quick-serve restaurants, as well as at nearly 11,000 schools, kids are getting the products they want, more than 1.2 billion times a year.

* Business plan flexibility: The checkoff’s partnership with McDonald’s is broadening, as the chain recognizes the checkoff’s wealth of consumer and dairy industry insights, along with product development and technology support that will help McDonald’s bring to market the products consumers want even faster.

* Integration across channels: Beyond the successful 2009 launch of McCafe® specialty coffees – which consist of up to 80 percent milk – McDonald’s has announced a 2010 national rollout of Frappes® that consist of nearly 50 percent dairy. In addition, McDonald’s is growing cheese sales via its launch of Angus Third Pounders, which use two slices of cheese per sandwich.

* Integration of interest and efficiencies: Competitors of McDonald’s are now using their own dollars to develop more dairy-based beverages, and to add more cheese to their menu items. McDonald’s already has invested $1.2 billion to add specialty coffee equipment and in-store renovations at its restaurants.

Capitalizing on a Network of Partnerships

In the case of McDonald’s and other initiatives, dairy promotion programs have built a network of partnerships that deliver strong sales results, according to Bill Siebenborn, a Missouri dairy producer and chair of UDIA, the federation of 19 state and regional dairy promotion organizations that work to implement a consistent unified marketing plan to build sales across the country.

“The grassroots input and relationships of the state and regional dairy promotion organizations play a critical role in bringing these programs to life,” he said. “We are able to accomplish this through powerful partnerships among 19 state and regional organizations that are members of UDIA, and between UDIA and NDB,” Siebenborn said. These partnerships combine resources and create efficiencies that lead to positive results for dairy producers, he added.

Siebenborn offered the example of “Fuel Up to Play 60,” a school-based partnership between the dairy checkoff and the National Football League® that encourages students to eat dairy and other nutrient-rich foods, and get sixty minutes of physical activity each day. This program will be available in roughly two-thirds (60,000) of our nation’s schools by the end of the 2009-2010 school year, thanks to the network of 350 local dairy promotion staff.

Local dairy promotion staffs also worked with Domino’s Pizza® franchises to raise awareness and build sales of Domino’s American Legends™ specialty pizzas, including publicity on Web sites and promotions with local media.

Beyond food service, dairy producers are also working to grow cheese sales in schools.

“Nationally and locally, we are working with schools, cheese manufacturers and other industry leaders to create a healthier pizza — one with real cheese that tastes great, but with reduced levels of fat, sodium and calories,” he said.

The Innovation Center for U.S. Dairy: Creating a Common Voice

A key partnership structure that the dairy checkoff has built within the dairy industry is the Innovation Center for U.S. Dairy. Rovey describes the Innovation Center as the industry’s “think tank” for identifying opportunities to grow sales in the dairy industry, and for developing and implementing action plans to address issues that could be barriers to that growth. In addition to the Innovation Center’s 30-plus member organizations, Rovey pointed to the involvement of more than 400 dairy industry leaders who have volunteered their time and resources in a shared commitment to dairy farmer priorities: health and wellness; insights for innovation; sustainability; globalization (to better position U.S. dairy in the world marketplace); and consumer confidence.

Regarding the latter priority, the Innovation Center “provides a forum for the industry to identify opportunities and develop action plans to better deliver nutritious dairy foods, beverages and ingredients for the health of people, communities, and the earth,” added Kimberly Clauss, a California dairy producer and NDB chair. “In other words, it’s Healthy People … Healthy Products … Healthy Planet.”

“When the public has a positive image of dairy products, dairy producers and the industry, it helps maintain and grow confidence in U.S. dairy products and ingredients,” she said.

A Consumer Confidence operating team has been created to work with dairy marketers to drive a consistent, unified message to consumers.

The dairy checkoff already does this through such vehicles as www.dairyfarmingtoday.org, which educates consumers about how dairy producers care for their animals and the environment, while providing safe, nutrient-rich dairy products. Components of the Web site can also be found on You Tube, Facebook and Twitter to reach more consumers through social media.

Clauss related that the checkoff has an industry-wide issues and crisis management system in place to respond to misinformation with a common voice. Checkoff-funded regional crisis preparedness drills in 2009 involved more than 150 participants from dairy co-ops, branded processing companies, grocery store chains, and federal and state government regulatory agencies. According to Clauss, the goal is to create a “common voice” network to respond in the event of a crisis involving consumer confidence in dairy products and ingredients.

For more information about producer-funded dairy checkoff programs, visit www.dairycheckoff.com.


Leaders discuss NMPF actions taken to combat dairy crisis

In their joint address, Nov. 11, to the membership at National Milk Producers Federation’s 2009 Annual Meeting, NMPF chairman Randy Mooney and president and CEO Jerry Kozak discussed the multitude of actions taken by the organization in the past year to counteract the economic recession facing dairy producers, and also provided updates on other industry issues.

As they took turns speaking, Mooney and Kozak explained why NMPF took the previous USDA administration to court last December, winning a legal battle that prevented USDA from selling surplus milk powder to the lowest bidder.

“The reason why USDA’s effort had to be stopped is that the Farm Bill that passed last year specifically said that USDA can’t sell any surplus dairy products it has purchased for less than 110% of the purchase price,” Kozak noted. “USDA was considering circumventing that law by giving the powder to a third party to auction at a lower price.”

The interaction between NMPF and the new USDA administration in 2009 has been very collaborative, and NMPF credited Secretary Tom Vilsack for his commitment to helping the dairy industry. Mooney and Kozak said that of NMPF’s list of items brought before USDA in the beginning of the year, all were accomplished. Those included:

  • Liquidating the surplus buildup of 200 million pounds of nonfat milk powder to prevent it from hindering price recovery on the market;
  • Reactivating the Dairy Export Incentive Program (DEIP) to help sell more than 900 million pounds of products overseas;
  • Raising the price support levels temporarily; and
  • Buying cheese products for consumers, which Congress ultimately funded as part of a $350 million dairy aid package.

Mooney and Kozak continued by touching on other issues NMPF worked on in 2009. They noted that NMPF has been supporting the long-standing effort to establish tariffs on imports of Milk Protein Concentrate and casein, and has urged USDA to impose the checkoff on dairy imports.

Last month, NMPF realized a victory with USDA’s announcement that it would put restrictions on the economic exemption enjoyed by the largest producer-handlers.

Immigration and climate change have been important topics, and NMPF has been active on Capitol Hill to stay involved in those high-profile issues. Animal care is becoming a more visible issue in the dairy industry, and that’s why the new National Dairy FARM (Farmers Assuring Responsible Management) Program will show “our ongoing effort to publicly demonstrate the commitment that farmers have to animal care,” Mooney said.

Cooperatives Working Together (CWT) had its busiest-ever year in 2009, with three herd retirements. CWT demonstrates to the rest of the country that dairy farmers have been trying to help themselves, and that effort has been met with success. Kozak remarked that “without CWT, it would have taken another six months of 10 dollar milk prices” to bring equilibrium in production and consumption.

The biggest issue discussed by Mooney and Kozak centered on NMPF’s Strategic Planning Task Force and its Foundation for the Future. Mooney said: “The Foundation for the Future represents a great deal of thoughtful input about where our industry needs to go in the future. In addition to considering how to make CWT even more effective, including the need to bolster its participating level, the other elements of the Foundation represent nothing more than common sense about changes we need.”

The Foundation is still a work in progress, but would include reform of the existing dairy safety nets, as well as the Federal Order system.

The full text from Mooney and Kozak’s joint speech is available on the NMPF website.

Study says U.S. dairy industry isn’t set up to accommodate global market

The U.S. dairy industry is not set up to accommodate a global market and it must take steps to address increasing globalization, speakers concluded at the joint annual meeting of the National Dairy Promotion and Research Board (NDB), the National Milk Producers Federation (NMPF) and the United Dairy Industry Association (UDIA).

Speaking before nearly 1,000 dairy producers, Clinton Anderson, partner at the global business consulting firm Bain & Company, said a study conducted for the Innovation Center for U.S. Dairy with assistance from Bain concluded that the U.S. dairy industry can address globalization by increasing its competitiveness both domestically and overseas and by seizing an estimated “latent demand gap” that will create a global shortfall of approximately seven billion lbs. of milk by 2013.

Recognizing that globalization is playing a more significant role in the U.S. dairy industry, the Innovation Center for U.S. Dairy, with staff assistance from Dairy Management Inc. (DMI) and the U.S. Dairy Export Council (USDEC), prepared a strategic analysis of the global dairy landscape. The objective of the study was to provide the U.S. dairy industry an understanding of the impact of globalization on internal and external markets, and to identify strategic options to accommodate that impact.

Driven by emerging markets, Anderson said the study concluded that worldwide demand for dairy products will return to growing faster than available supply, and that traditional sources of supply will not be able to fully satisfy growing consumption. He went on to say that low-cost suppliers from South America and Eastern Europe will eventually become more capable competitors for a larger share of the global demand, leaving the United States with a finite window of opportunity in which to create a defensible competitive position.

“China and Southeast Asia will continue to be major net importers due to rising incomes and an increasingly urban population, and Mexico, Algeria and Saudi Arabia are also forecast for consumption to outpace production,” said Anderson. “On the supply side, Oceania is currently a low-cost producer, but future growth will see limits imposed by water and land scarcity to increase productivity beyond current levels.”

The study also said the impact of globalization is pervasive enough to affect all domestic dairy companies, whether they choose to directly participate in international dairy trade. “Clearly, as the dairy economy of the past two years demonstrates, world economic factors will affect dairy price in the United States. And, while not the market that will deliver the most robust growth over the next 5 to 8 years, the U.S. internal market totals over 16% of world dairy consumption, the largest single market outside the European Union. Consequently, any successful long-term global strategy for U.S. suppliers must also focus attention on its huge internal market for U.S. produced dairy products and ingredients.”

The study said that structural constraints get in the way of the United States accommodating globalization. Some major challenges the report cited include severe pricing volatility, market distorting pricing mechanisms and, generally speaking, insufficient customer focus that leads to narrow product diversity and inconsistent customer service.

In response, the study authors laid out several possible strategic responses to the current and projected environment. Responses ranged along a spectrum from an industry (like Canada) that focuses exclusively on the domestic market to an industry (like New Zealand) that focuses primarily on exports. Maintaining the status quo was identified as an option as well, but the study said that inaction will lead to a less competitive U.S. industry.

Recently the Innovation Center Globalization Task Force adopted a “consistent exporter” strategy to develop global opportunities for the U.S. milk supply, including broad industry efforts to gear U.S. products and pricing policy to simultaneously facilitate domestic and international growth. “Producers, dairy cooperatives, manufacturers, processors and suppliers will begin to soon determine how to work together pre-competitively to address globalization and will identify priority programs of prospective work,” said Tom Suber, president of the U.S. Dairy Export Council (USDEC), which assisted Bain on the study.

“Over the last few years, we’ve seen how big a factor the world market is to our domestic market,” said Suber. “And in 2009, we saw a loss of our export sales contribute to oversupply in the U.S. market. We’ve discovered that for dairy, like the Thomas Friedman best-seller, “The World is Flat.”

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Innovation Center for U.S. Dairy provides a forum for the dairy industry to work pre-competitively to address barriers to and opportunities for innovation and sales growth. The Innovation Center aligns the collective resources of the industry to offer consumers nutritious dairy products and ingredients, and promote the health of people, communities, the planet and the industry. The Board of Directors for the Innovation Center represents leaders of more than 30 key U.S. producer organizations, dairy cooperatives, processors, manufacturers, and brands. The Innovation Center is supported and staffed by Dairy Management Inc. For more information, contact innovationcenter@usdairy.com.

USDEC identifies measures and policies that impede U.S. dairy trade

The U.S. Dairy Export Council (USDEC) has identified a list of trade measures and policies that should be highlighted in an annual government report that details significant foreign barriers to U.S. exports.

In joint comments filed this week with the National Milk Producers Federation (NMPF) to the Office of the U.S. Trade Representative, USDEC listed nearly 20 measures from nine countries that should be included in the U.S. government’s “2009 National Trade Estimate Report on Foreign Trade Barriers.” The report serves as a companion piece to the President’s Trade Policy Agenda published in February.

“Although we have trade challenges in a number of countries, we would like to draw attention to a few that have proved to be most troublesome,” USDEC wrote in comments filed November 3.

Among the barriers listed were several that USDEC say impede U.S. dairy exports to China, a “swift growing market, making any trade challenges of particularly concern to our industry.” Highlighted in the comments are development of new standards for whey permeate, whey protein concentrate and whey protein isolate that USDEC says are not based on sound scientific principles and may not be in compliance with China’s obligations under the World Trade Organization (WTO).

Another long-standing concern highlighted was restrictive levels of Vitamin D fortification for milk in Mexico, which are far lower than those of Australia, Canada, New Zealand and the United States. “These unnecessarily restrictive limits are not founded on strong science and pose a challenge to those wishing to export milk to Mexico,” given the large and comprehensive base of scientific research supporting higher levels, USDEC wrote.

USDEC also cited concern with standards recently implemented in Canada that changed the composition standards for cheese. Since they went into effect at end of 2008, these new measures have significantly dampened demand among Canadian dairy processors for U.S. ingredients that had previously been used to manufacture cheese in the country. “Canada’s actions in this respect are clearly in violation of its international trade obligations under the WTO and the North American Free Trade Agreement as its regulations annul import rights granted to the United States under those agreements.”

Other trade measures outlined in the USDEC comments included unscientific and unwarranted health certificate requirements in Algeria, one of the world’s largest buyers of skim milk powder; unfounded sanitary requirements in India that have limited imports of U.S. dairy exports since 2003 and new requirements in Indonesia (the fourth largest export destination for U.S. dairy products in 2008) requiring companies exporting animal-derived products to divulge proprietary information.

“These are significant foreign trade barriers and they have been detrimental to U.S. dairy export trade,” said USDEC. “We will continue to work towards resolution of these matters to provide more broad-based growth in U.S. dairy trade and fair competition for the United States in the international trade arena.”

Success Strategies: 10 steps to a positive approach to cash flow management

By John Ellsworth

Producers are being asked to cash flow. I’ve observed a great deal of anxiety by most bankers concerning lending additional funds to dairy farmers. The challenges have carried over to many suppliers, also under lender pressure to remain profitable and keep accounts receivable as current as possible. At these  milk prices, what can dairy farmers do?

Below are the “Top 10” steps that have worked well in my practice. Clients who adhere closely to them have been positioned to handle the downturn relatively well, several with a positive cash flow year-to-date. Positive results do not necessarily come from any one or two steps, but rather are a direct result of each step contributing to the others to have a positive and compounding effect.

‘Top 10’ steps

1.) Set annual goals. Goal-setting changes the focus from “problem-solving” to process improvement and objective achievement.

2.) Development of a disaster agenda. Think about the three worst things that could happen to your business. Then, outline best responses. Even if those items don’t occur, but something similar happens, you will be better prepared to respond successfully.

3.) Hold regular management team meetings. Involve your nutritionist, veterinarian and key management personnel, focusing on managerial changes that fit with your goals.

4.) Hold regular finance team meetings. Discuss forthcoming issues, such as capital expenditures, monthly and annual budgets, financing needs, and other items that can impact ongoing cash flow and profitability.

5.) Cash flow comparisons. Completed monthly, this monitors how we are doing in terms of ongoing cash flow vs. our annual budget. These comparisons are the quickest method to catch costs getting out of line vs. our plan. Make adjustments through the year.

6.) Use CPA-prepared financial statements. These are an absolute must for two reasons: 1) they are an excellent tool for the ongoing financial management; and 2) they help you and your lender understand what is going on, because accrual financial statements account for changes in inventories, prepaid amounts and accounts payable, not just the cash flows we watch monthly.

7.) Hold bank meetings two times per year. Your banker must be involved as part of your overall team, understanding our business strengths and areas for future improvement. They also appreciate being kept updated on your challenges, and any plans for expansion, managerial changes or incorporation of the next generation into your business – particularly if the changes require added financing.

8.) Develop a milk marketing plan. It’s an absolute must, particularly with increasing milk price volatility and fluctuation. Understanding your break-even price level and knowing how to position your business to achieve that price will be essential to your financial future. Work with an options broker you trust.

9.) Use a nutritionists. My personal preference is to use an independent nutritionist, but the most important item is to get advice from someone you trust. This can also be helpful in keeping up-to-date on commodity price and availability, as well as the outlook for current and projected costs of hay and silages.

10.) Track quarterly inventories. Valuable for your accountant to measure changes in your feed supply, they are also crucial to your overall feed management. Additionally, bank auditors are really zeroing in on feed lines that are out of compliance. Keeping close track of your inventories will help to keep you out of this painful situation.

I believe it is important that we establish a positive attitude. This year has tested mine. It is easy to become negative in this financial environment. However, these are the times when people are looking for positive leadership, whether in your business, your community or your family.

FYI

John Ellsworth of Modesto, Calif., is a consultant with the financial and strategic consulting firm Success Strategies. He can be reached at 209-988-8960, or by e-mail: je4success@msn.com.


Going global: Economic, other challenges cross geographic, political boundaries

On the heels of World Dairy Expo, Alltech hosted its second Global Dairy 500 conference, attracting more than 330 producers and advisors from 31 countries.

By Dave Natzke

Dairy producers in nearly every corner of the world share common challenges: economic, environmental and social. It’ll take an integrated approach to address those challenges, a task made easier if the global industry learns from each other and works together, according to Pearse Lyons, founder and CEO of Alltech. Alltech hosted its second Global Dairy 500, Oct. 4-7, in Lexington, Ky.

Lyons estimated only about 2% of the world’s dairy farmers are profitable at current world prices. “We’re living in a new dairy world, but underlying every crisis is an opportunity,” he said. To survive in that new world, producers must take an integrated approach.

Lyons outlined six critical issues producers must address:

1) efficiency of production

2) more lactations per cow

3) quality of production systems

4) investment in education

5) using branding/traceability to return a larger share of dairy sales dollars to producers

6) environmental/sustainability issues.

Other highlights

• Addressing dairy producers making ration changes to reduce feed costs, University of Illinois dairy nutritionist Mike Hutjens reminded producers that high-producing, pregnant and healthy cows make more profit, and that any feeding adjustments negatively affecting these three areas will be detrimental to the dairy’s bottom line. He urged producers to focus on forages and by-product feeds.

• Jay Johnston, Ritchie Feed and Seed, a Canadian firm, urged producers to emphasize a ration based on the digestibility of feedstuffs. He warned that diets are not always what they appear on paper, with wide variations between what is formulated and what is fed to the cow. He recommended use of rumen modifiers, consideration of volatile fatty acids, and consistent and accurate feed testing.

• Juan Tricarico, Alltech research manager for ruminant nutrition, called cows “walking fermenters,” urging producers to monitor feed efficiency under today’s economic and environmental climate. At some point, he said, the addition of nutrients faces the “law of diminishing returns.” Maximizing production does not always maximize profitability, and excess nutrients are excreted in manure/urine, with an environmental impact.

• Declan Coyle, Andec Communications, Ireland, identified “pillars” of building a high-performance management and employee team, including: establishing a vision and goals; communicating core values; selecting optimistic and persistent team members and putting them in the right positions; keeping team members fully engaged; showing appreciation for a job well done; and using “constructive, productive” conflict when changes are needed.

• Nigel Lok, South Africa, stressed the importance of accelerated heifer growth to maximize milk production and reproduction in second and third lactations. He said growth during the first six months of a heifer calf’s life determined her lifetime performance. p

5 things I’d do differently

Bill Prokop,  U.S.A.

1) Get smarter (on the business side)

2) Listen louder

3) Commit more spontaneous acts of appreciation

4)  Sweat the small stuff

5) Recognize that figures lie, and liars often figure

Nigel Lok, South Africa

1)  Feed cows properly and individually to manage milk, condition and fertility

2) Focus on body condition, using body weight, height and condition to remove as much subjectivity as possible

3)  Recognize critical nature of dry/transition period

4) Grow heifers out to genetic potential;

5) Do not crossbreed.

Simon Timmermans, U.S.A.

1) Focus on lean muscle mass in dry cows and heifers

2)  Incorporate more “fun’ on the farm

3) Overhaul early calfhood nutrition to maximize biological growth potential

4) Redefine trace mineral nutrition (both in terms of levels and forms)

5) Practice nutrient-based rather than ingredient-based nutrition

Bruce Woodacre, United Kingdom

1) Record right information and act on it, especially dry matter intake

2)  Listen to the cows

3) Manage body condition scores

4) Make adequate forage (quantity and quality)

5) Manage the transition period correctly.

FYI

For more information on the Global Dairy 500 conference, visit www.alltech.com/globaldairy500/default.htm.


Premiums & Deductions: Dairies Have A ‘Steak’ in Cow Quality

When every dollar of dairy income counts, lost premiums and quality deductions on cull cows add up.

By Dave Natzke

Dairy cows represent 6%-8% of total U.S. beef produced annually – and a source of income for dairy producers when cows can no longer contribute in the milking parlor. As of late October 2009, more than 2.3 million culled U.S. dairy cows were slaughtered under federal inspection this year alone.

Results of the 2007 National Market Cow and Bull Beef Quality Audit indicate there’s still work to be done to improve market cow quality and consistency. Auction barn audits demonstrated dairy cows had the most visible quality defects compared to other cattle types.

A recent beef quality assurance (BQA) program, sponsored by the national beef checkoff program with help from Idaho and California Beef Councils, estimated how quality defects impacted cow sale prices. Information was collected at 10 livestock auction markets with regular weekly sales (four locations in California, five in Idaho and one in Utah) during spring and fall of 2008. A total of 9,177 lots with 12,429 head were analyzed. The majority (86%) of cows sold for $30-$60/cwt. The mean sale price of all cows was $42.23/cwt.

According to USDA, the 2008 average price for cull cows (beef and dairy cows combined) was $50.60/cwt.

Comparing cows

Subjective scores – based on established evaluation scales – were assigned for body condition score (BCS), muscle score and locomotion score (LS). Additionally, cows were evaluated for specific defects: foot abnormalities; mastitis evidence; retained placenta; brand (and major brand) presence; horn presence/length; cancer eye score; prolapsed rectum/uterus; evidence of surgery; abscess/sore presence; whether cows were visibly sick;  or other conditions.

Researchers developed a model for a “par” cow: a healthy, Holstein cow selling as a single lot with the following characteristics: weight – 1,400-1,599 lbs.; BCS – 3.0; muscle score – 3.0 muscle score; lameness score – 1.0; udder size – average; with no horns, brands, knots, sores, cancer eye, foot abnormalities, leg bands, udder or reproductive defects.

Premium and discount ranges

Premiums and discounts listed are compared to “par” cows:

• BCS: Market cow buyers desire moderate to heavy BCS, with no deductions at 3.0, and a premium of  $1.35/cwt. at 4.0. Emaciated and near emaciated cows (BCS 1.0 or 1.5) were strongly discounted (-$20.47 or -$12.19/cwt., respectively).

• Body weight: Lightweight cows (<1,000 lbs) were discounted substantially (-$6.72/cwt.); with cows weighing 1,000 to 1,199 lbs. (-$2.89/cwt.); and 1,200-1,399 lbs. (-$1.14/cwt.). Heavier cows earned premiums, with 1,600 to 1,799 lbs. (+$0.73/cwt.) and 1,800-1,999 lbs. (+$0.97/cwt.). Very heavy cows (2,000 lbs. or more) received the same price as cows weighing 1,400-1,599 lbs.

• Lameness. Discounts for lameness varied substantially, depending on severity. Cows with a LS of 2 or 3 were discounted $1.76 or $2.88/cwt., respectively. Cows with a hunched back while standing and walking and favoring one limb (LS 4) were discounted $4.03/cwt.

• Muscle score. While heavier muscling is not a typical breed characteristic for dairy-type animals, it does impact carcass yield. Cows with a light muscle score of 1 or 2 were discounted at $6.92/cwt. or $1.80/cwt., respectively.

•  Udder size. Udder size influences dressing percentage, carcass weight compared to live weight. Non-carcass items (hide, head, udder, etc.) is commonly referred to as the “drop” or offal value. Buyers will “adjust” the live weight price based on a cow’s anticipated dressing percentage.

Based on research, “small” udders (25-50 lbs.) constitute 3%-5% of total drop weight;  “average” udders (50-75 lbs.) represent 8%-11%; and “extra large” udders (greater than 75 lbs.) likely represent 15%-20%, significantly impacting dressing percent. Cows with extra large udders were discounted $1.18/cwt. In contrast, cows with small udders, including dry or undeveloped mammary glands, received a $0.54/cwt. premium.

Illness: Animals that exhibited a potential antibiotic residue risk based on their appearance were discounted. For example, animals that had reproductive defects, such as a retained placenta or evidence of a recent surgery,  were discounted $5.02/cwt. and $8.64/cwt., respectively. Animals that appeared to be sick were, on average, discounted $15.77/cwt.

Other BQA traits

While other traits were not highly prevalent, they did have the potential to significantly impact sale prices.

• Foot abnormalities. Cows with foot abnormalities (long toes, screw toe, etc.) were  discounted $5.79/cwt.

• Leg bands. The presence of one or more colored leg bands, commonly used to identify a cow for a variety of reasons (e.g. not to be bred, treated with antibiotics, kicks during milking, etc.), did not affect selling price.

• Bottle teats. The incidence of bottle teats, which may indicate mastitis, did not affect selling price. However, cows with visible mastitis sold for $2.35/cwt. less.

• Ocular neoplasia (“cancer eye”): Very few cows exhibited ocular neoplasia, but a small percent were assigned a score of 5, which indicates the eyeball is prolapsed from the orbit. Cows with ocular neoplasia in the pre-cancerous stage (score of 1 or 2) were discounted heavily (-$6.78/cwt.). A severe discount (-$32.04/cwt.) occurred in cows with ocular neoplasia in the cancerous stages (3, 4 or 5 score), due to the possibility these animals will be condemned. Animals identified in early stages of ocular neoplasia should be marketed immediately to avoid severe discounts.

• Retained placenta. A small percentage (0.13%) of market dairy cows had a visible retained placenta, and were discounted $5.02/cwt. Evidence of recent surgery (displaced abomasum, caesarean section, etc.) led to a discount of $8.64/cwt.

• Body sores. “Active” or recently acquired body sores on the hip or knee led to a discount of $4.58/cwt. and $4.85/cwt., respectively.

• Visibly sick. Cows displaying one or more of the following subjective characteristics – severe lethargy, extreme weakness, significant panting, drooping ears or extremely gaunt – often resulted in an animal not selling at any price, or being sold contingent on passing inspection at the packing plant.

• No sales. About 1.5% of the animals offered for sale to auction market buyers were “no saled” or “passed out” due to the presence of one or more major BQA defects, including, but not limited to: severe lameness, visible illness, emaciation, advanced cancer eye, or being extremely light-weight or light-muscled.

Implications

Culling animals in a timely manner is one of the best measures to maintain value and enhance their carcass quality. Recognize potential opportunities to add value by improving carcass quality and yield by improving BCS, body weight and muscling score.

BCS emerged as one of the most important factors in determining potential premiums. Producers should consider adding value via improved BCS to thin cows prior to sale.

The positive correlation between increased body weight and price indicates producers should consider adding pounds to lighter weight market cows (<1,400 lbs.) prior to sale. Benefits include avoiding the lightweight discount, accessing a heavyweight premium, as well as selling more weight at a higher price.

However, producers must determine if such a strategy is cost-effective, comparing the potential added revenue with other costs, such as feed, medicine, time and labor involved with keeping an animal when she has no potential to return to the milking string.

A pricing model developed by researchers indicated the range of discounts was greater than potential premiums. The best strategy is to avoid major discounts through management and timely culling. This will optimize revenue opportunities and decrease the likelihood of cows entering the marketplace in marginal condition.

Avoid selling animals that are severely emaciated, visibly sick, very lame, have open sores or injuries, cancer eye or evidence of surgery. Animals with extreme defects should be humanely euthanized on-farm to address both welfare and consumer perception issues.

FYI

For more information about this research or the Beef Quality Assurance Program, visit www.bqa.org.


Human Resources: Work with feeders to reduce costs, improve efficiency

Communicating with your feeders is critical if you want to reduce costs and improve feed efficiency.

By Felix Soriano

How often do you monitor feeding accuracy of your feeders? When was the last time you talked to them about their role in your dairy’s profitability? Communication and feedback are key steps to reduce feed cost and improve feed efficiency.

Here are six practices managers should consider to improve a feeder’s performance and reduce feed cost:

1) Have a meeting with your feeders and talk to them about the importance of their role. Refresh protocols and explain the “whys” of each step of the loading, mixing and feeding process. Be specific about the economic impact their performance and accuracy have on feed cost and income over feed cost. Take this opportunity to talk to them about the current dairy economic crisis and give an example of income over feed cost.

2) Define your key performance indicators (KPIs). You should be able to monitor KPIs daily, and these should be directly affected by the feeder’s performance. Also, KPIs should have an impact on cow performance, feed cost and overall dairy profitability. Using a feed management software like Feed Watch or TMR Tracker will help monitor feeder’s performance more easily and accurately. Some examples of KPIs affecting a dairy’s bottom line are:

• loading accuracy (individual ingredients and overall feed)

• feeding accuracy (variation between expected amount of feed per pen and actual amount fed)

• mixing time (can have an impact on herd health and performance)

• shrink losses of key ingredients (keeping good inventories is crucial).

3) Give good and periodic feedback. This is a great way to tell your feeders what you are looking for and, when done correctly, can be an excellent way to keep employees motivated. For example, post the KPI numbers daily in a place where feeders have daily access. Leave a note saying “great job” or “keep up the good work” when numbers are improving or are excellent. Before posting KPIs, and make sure everyone understands what they mean.

4) Recognize great performance and penalize poor performers. Develop a bonus program, rewarding excellent performance, but also penalizing poor performance. Feeders must know – in advance – the consequences for not performing according to expectations. A good example can be rewarding loading accuracy (feeders can make more money as loading errors are reduced). Rewards may vary depending on the type and cost of the ingredient.

5) Develop standard operating procedures (SOPs). This may seem time consuming, but it can bring a lot of benefits. SOPs will help reduce errors and variations between feeders; improve feeder’s confidence; and are useful when training new employees. Have your key feeder help develop SOPs. This will give him a sense of ownership of the SOPs, and help the entire team buy into SOP implementation. Translate all protocols into Spanish if you have Spanish-speaking employees.

6) Develop a training/orientation program for new feeders. This will reduce errors and feed costs, and improve the chances of success of your new feeder.

First, establish who the trainer will be and train that person as a trainer (train the trainer). If necessary, bring an outside specialist to help develop this training/orientation program. Preferably, this consultant should speak the same language as your employees.

Important topics to consider for a training program are:

• dry matter calculations

• importance of loading accuracy

• the mixing process

• the feeding process

• feed bunk management

• mixer maintenance

• proper silo face bunk management

• feed inventory

• feed shrink

By taking these steps you will improve your feeder’s desire to perform at their maximum level. Reinforcing the importance of their role, constantly giving feedback, and rewarding excellent performance can go a long way with your employees – and reduce feed costs and improve income over feed costs

FYI

Felix Soriano is a labor management and human resource consultant with APN Consulting LLC, Warrington, Pa. Contact him via phone: 215-738-9130, e-mail: felix@apndairy.com or visit www.apndairy.com.


Calf Connection: Employee Training: Is it really effective?

By Sam Leadley

Successful calf rearing depends on all caregivers doing their jobs correctly – all the time and on time. However, not everyone knows how to do their job properly. That is where training fits in.

When is training needed?

All newly hired workers need training. Never assume a person who claims to be experienced in calf care will perform them following your dairy’s procedures. Everyone needs to learn, “On this farm this job is done like this.”

When worker performance is compared to the protocol for doing a calf care job and found lacking, employees need retraining.

Who should do the training?

The first consideration for a trainer is being able to do the job correctly himself or herself, following the dairy’s protocol. A poorly trained person as a trainer is a recipe for poor calf care.

Second, it is essential to know enough about the job to be able to explain “why” it is important to do each step the way it is described. Knowing the “why” benefits us two ways: 1) a worker recognizes the significance of his/her work for calf viability and health; and 2) when an unanticipated circumstance happens, a worker selects the proper alternative procedure.

Third, a good trainer understands performing a task properly takes more than just “head” knowledge. Most calf care jobs involve motor skills that can be learned. Learning how to do a job correctly must involve actually doing the job; not just talking about it or watching another person do it.

Learning by doing

A proven technique when teaching a skill is:

1) The teacher demonstrates the skill.

2) The employee practices the skill while the teacher watches and evaluates.

3) If employee performance is lacking, then the teacher demonstrates again, emphasizing the points where the employee was weak.

4) The employee practices the skill again with the teacher evaluating.

5) The employee graduates and is allowed to work on his/her own.

From the employee’s point of view, learning a skill involves more than just watching the teacher. The employee must practice the skill.

For example, if you want to teach an employee how to give a local anesthetic when dehorning calves, you assemble all necessary materials, go to the calf housing, restrain a calf and, with the employee watching, give the Lidocaine.

It’s important to point out what you are doing at each step and why proper performance of each step is important. Unfortunately, most teaching sessions end without any practice for the employee while being observed by the teacher.

Practice while being observed

The student does the job and practices the skills while the teacher watches and evaluates. Did the employee halter the calf properly? Did the employee tie the halter as demonstrated in a knot that releases easily? Was the correct amount of Lidocaine drawn into the syringe?

You have the choice of letting the student complete the entire process of giving the local anesthetic. Then, if there are deficiencies, you can demonstrate techniques again.

When teaching, I choose to break into the employee’s practice session, demonstrating again the proper behavior right when the mistake is being made. This keeps the employee from practicing a skill incorrectly.

Making training more effective

• Keep the training session short. Break training into sessions lasting 10-15 minutes. Using the local anesthetic example, if the employee does not know to restrain calves, make that one session. Once those skills are mastered, go on to giving the Lidocaine injections.

• Train at the work site. If teaching an employee how to dip navels, go to the calving pen or barn. If teaching how to clean a tube feeder, go to the sink where it is usually done.

• Use actual equipment normally used to do the job. Saying, “If we had the [tool] we would have used it like this” cripples training. If you usually use a brush, syringe, water, Lidocaine and clippers, have them all for training.

• Having a written protocol (especially if it is in the employee’s native language) gives the teacher a “standard” when evaluating the employee’s performance.

• Be enthusiastic about teaching. Even if it’s not one of your favorite activities, think of how a properly prepared employee can make a positive contribution to the dairy’s bottom line.

FYI

Sam Leadley is a replacement consultant with Attica Veterinary Associates, Attica, N.Y. Contact him via e-mail: sleadley@rochester.rr.com; phone: 585-591-2660; or visit http://atticavet.entrexp.com.


PRO-DAIRY: Success isn’t guaranteed, but it is possible

Editor’s note: The PRO-DAIRY section of the November 2009 edition of Eastern DairyBusiness deals with Farm Transfers. To read the four-part section, visit:

• Transferring a dairy…Getting started http://dairywebmall.com/dbcpress/?p=4769

• Information you need for farm transfers http://dairywebmall.com/dbcpress/?p=4771

• Take the financial pulse of your business http://dairywebmall.com/dbcpress/?p=4773

• Success isn’t guaranteed, but it is possible http://dairywebmall.com/dbcpress/?p=4775

Transferring your dairy business to the next generation is ripe with challenges. But it can be done, bringing families great joy


By Bernie Erven

Every family farm business will eventually have new owners or be out of business. This is a truism that no farm family can ignore. If the new owners are the younger generation, farm families that answer the following five questions can minimize the challenges of a business transfer:

1. How can I tell if our business is profitable enough to provide for the next generation?

2. Are our income and assets great enough to provide for the older generation’s wants and needs?

3. How can I help the two generations get along?

4. What should I transfer? In what order?

5. How do I avoid paying too much income, gift and estate taxes?

These questions force a family to address the critical issues in a business transfer. They identify what must be discussed and suggest a plan for proceeding. A plan, while necessary, doesn’t guarantee success.  But don’t let frustration and complexity prevent you from giving the transfer challenge your best shot.

1. Profitability. Jason Karszes in “Take the financial pulse of your business” discusses how families can assess their businesses’ financial soundness.

Let me add that no one measure of profitability answers the critical questions about business feasibility. Commonly considered factors are size, rates of production, labor efficiency, cost control and marketing/purchasing.

Profitability is a question of degree. A farm may be profitable but not profitable enough to satisfy a family’s income requirements. Family living expenses change, as do expectations about lifestyle. A family enthusiastic about continuing its farm may pretend that modest family expenses and drastic sacrifices will be acceptable. They won’t be.

The national Farm Financial Standards Task Force suggested 16 financial measures to help farm families base decisions on hard data and analysis rather than perceptions. The measures are grouped into five categories: liquidity, solvency, profitability, repayment capacity and financial efficiency. Every family planning a business transfer will benefit from having solid information in each area.

2. Income and assets for the older generation. The older generation should make an honest list of its goals as a way to make decisions about income needs and assets. Typical goals include: provide opportunity for children, be fair, minimize transfer costs, avoid disruptions to the business, reduce debt to manageable levels, stay active in farming and make a sound estate plan.

The younger generation must be just as honest and thorough about its goals. Ignoring fundamental conflicts in goals can doom a transfer. But honestly discussing goal differences in a conciliatory manner helps move transfer planning forward.

Greediness, impatience and lack of commitment to continuing the family business can play critical roles in how families transfer businesses.

Since not everyone will get exactly what he or she wants from the transfer, tradeoffs are required. But avoid, if possible, tradeoffs forced on the majority by a minority. A few people determined to get their way “or else” can harm family relations and the transfer process.

Outside advisers can help greatly with goal setting and negotiating tradeoffs. Among other things, advisers can serve as a sounding board, provide technical information, and help evaluate tentative plans, mediate differences and nudge the planning process along.

3. Getting along. Some families will fare much better than others in planning business transfers. Families who have long emphasized communication, openness, trust and shared responsibility for family well-being are likely to have good relationships during the stress of transfer. Those who have failed to communicate, trust and share responsibility are likely to be haunted by these deficiencies during business transfer.

The lesson is clear: Parents must start early in forming a family environment that can become the foundation for business transfers. (See Human relation guides for suggestions.)

4. Order of transfer. Agreeing on what needs to be transferred, when and how is part of any transfer plan. A complete business transfer includes eventual transfer of all assets even if some are from an estate after death.

Farm families with livestock usually start the next generation into an operation with breeding livestock. Inventories of grain, hay and feed are usually transferred next, followed by machinery and equipment. Land and buildings are transferred last, often after the death of both parents, primarily because of tax issues.

Don’t overlook the transfer of intangible assets. These include the formal and informal arrangements with landlords, suppliers, accountants, attorneys and other key outsiders. Make sure the next generation understands the history and background of these relationships and sees their importance.

Transfer of decision-making authority must be planned and carefully timed to avoid confusion. Responsibility without corresponding authority is meaningless.

Families must eventually transfer control of and responsibility for the checkbook, records, and compliance with legal and government regulations. This can be a giant hurdle.

5. Taxes. Income, gift and estate tax provisions all must be considered in transfer planning. Farm families almost always need the benefit of expert tax advice because of the complexity and changing nature of tax laws and alternatives.

Leaving land to the next generation after both parents have died often results in no federal estate tax and little or no income tax. Gifting can sometimes be used in place of a sale of assets to children. Also, leasing farm machinery, equipment and farm real estate to children sometimes can be helpful in the transfer plan.

Two final thoughts

Transferring a dairy business to the next generation will be, in most cases, a huge test of family determination, cooperative spirit, goodwill and trust. From my years of experience with farm families, here are two lessons I’ll leave you with:

Lesson 1: Prepare for, plan for, commit to and expect a challenge that can dominate the family for months or even years.

Lesson 2: A farm family can transfer its business to the next generation with great satisfaction and a sense of accomplishment. It starts with how children are parented and continues through establishing adult relationships with them. Each generation’s goals play a pivotal role. Finally, parents must accept that the transfer is a different stage of their farming careers.

The very fact that the family has persevered and progressed to the point that transfer is now on the agenda should be encouraging – encouraging that the family can meet this challenge just as it has met many challenges in the past.

Human resource guides

There are many things parents can do over time to create an environment in which a business transfer has a good chance of succeeding. Here is list of human relation guidelines for transfers:

Have a transfer plan.

Start the transfer planning early.

Prepare family members for their responsibilities in the business.

Treat people fairly, not necessarily equally.

Develop managers for the next generation of the business.

Strive to gain widespread family understanding of the business’ values and norms of behavior.

Make the family part of what is happening through regular and detailed communication.

Put the transfer plans and agreements in writing.

Use a testing stage for all family members entering the business.

Pay attention to and coach daughters- and sons-in-law.

Deal honestly and fairly with differences of opinion and conflict.

Face the tough tradeoffs.

Involve outsiders.

Accompany the transfer plan with a business plan.

Have written job descriptions and an organization chart.

Look for opportunities in the business that fit the strengths of the next generation of owners and managers.

Regularly spend time affirming the children in the family.

FYI

Bernie Erven is professor emeritus in the Department of Agriculture, Environment and Developmental Economics at the Ohio State University. His interests are in farm, agribusiness and human resource management.

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