Archive for January, 2010

Ask your agronomist about ALFALFA SEED SELECTION

Considering the economic hardships experienced by dairy producers throughout last year, alfalfa seed decisions should be looked at differently for 2010, especially when a large variation in product price and performance exists. As producers and their advisors meet in the conference room (or kitchen), the conversation should explore side-by-side comparisons and stress income per acre.

Chad Staudinger is Forage Product Manager, Dairyland Seed Company Inc. Contact him via phone: 608-220-9249; or e-mail: cstaudinger@dairylandseed.com.

Chad Staudinger is Forage Product Manager, Dairyland Seed Company Inc. Contact him via phone: 608-220-9249; or e-mail: cstaudinger@dairylandseed.com.

By Chad Staudinger

The economic impact of alfalfa seed decisions is overlooked, as the focus continually leads to corn variety selection.  Considering the economic hardships experienced by dairy producers throughout the last year, alfalfa seed decisions should be looked at differently for 2010, especially when a large variation in product price and performance exists.  This large variation in performance may present a considerable opportunity to increase income per acre for dairy operations. Here are some questions to discuss with your agronomist to ensure these opportunities are being explored.

1) How do I know if alfalfa yield differences exist on my farm?

Differences in the genetic yield potential of alfalfa varieties are sometimes overlooked because, unlike corn, often times they cannot be visually observed in the field.  The only method to truly measure alfalfa yield performance is to weigh the harvested material coming from each field.  Side-by-side comparisons are also great but do require measuring the weight of each variety and also accounting for moisture differences to get an accurate record of the dry matter harvested per acre.  Ask if you should be doing a side-by-side comparison on your farm.

2) How much yield variation exists between alfalfa varieties?

When looking at the largest of datasets available from Dairyland Seed, lead selling varieties from various companies with more than 70 reps of data can vary by more than 12% in forage yield.  When looking at the difference between the best and worst variety in one field, however, the differences can be much greater.  Using four years of data from the University of Wisconsin alfalfa variety trials, the average annual difference in yield between the best and worst variety was 21.2% for full production years.  Considering an average on farm yield of 5 dry tons/acre in full production years, this amounts to a yield difference of 1.06 dry tons/acre per year. Ask to see university or third-party data from your area.

3) What does a yield difference of 1 dry ton/acre mean economically?

In order to apply economics to this concept, you must be aware of the alfalfa market in your area.  Let’s consider the value of alfalfa to be $100.00 per dry ton.  This means a yield difference of 1 ton equals $100.00 annually.  If a stand lasts 3 or 4 years, this adds up to an impressive $300.00 to $400.00/acre over the life of the stand.  If a bag of alfalfa seed can plant 2.5 acres, this adds up to $750.00 to $1000.00/bag of alfalfa seed.  Even a 5% increase in yield, or .25 tons/year, can increase your return by $100.00/acre, or $250.00/seed bag in 4 years. Ask about the economic impact of varietal decisions on your operation.

4) Other than yield, what factors should help me decide which variety is right for my operation?

• Disease Resistance. Look for a DRI (Disease Resistance Index) score close to 30.  Make sure the variety shows resistance to all major diseases in your area.  Common diseases in the Midwest include Anthracnose, Aphanomyces, Bacterial Wilt, Fusarium Wilt, Phytophthora Root Rot, and Verticillium Wilt.

• Persistence and Winter Survival. Look for varieties that excel in wheel traffic tolerance, spring green-up, recovery after cutting, and drought stress.  If you are in the northern U.S., pay particular attention to winter survival ratings and choose a variety with a WS rating of 2 or under.

• Forage Quality. Choose varieties that produce dense, fine stemmed alfalfa stands.  This will help ensure your variety has high potential for producing quality forage.  The best way to control the quality of your alfalfa forage is to know the maturity of your variety and to intensively manage your cutting schedule around it.

• Value Added Technology and Traits. Look for options that can increase income per acre in your operation.  Choose technology that increases yield, such as hybrid alfalfa or traits that might help protect yield, such as herbicide resistance or pest resistance.  Quality traits are in the pipeline such as low-lignin and increased tannin expression that may have a significant impact on forage quality in the future.

Ask about the potential for technology or traits in alfalfa to increase your profitability.

5) What about price?

Alfalfa seed prices typically range from $2.00/lb to $7.50/lb.  Considering this price range and a seeding rate of 20 lbs/acre, your seed input cost per acre can range from $40.00 to $150.00.  However, when comparing the $2.00/lb to the $7.50/lb alfalfa, if the higher priced alfalfa yields 1 ton more per acre, the extra cost of the seed is recovered in the first full production year.  Remember that your decision will affect you for 3 to 4 years.  Discuss the importance of value and price before making your alfalfa seed decision.

FYI

Chad Staudinger is Forage Product Manager, Dairyland Seed Company Inc. Contact him via phone: 608-220-9249; or e-mail: cstaudinger@dairylandseed.com.

Ask your nutritionist about DIRECT-FED MICROBIALS

2010 is here and, given the economic fallout from 2009, hard decisions will need to be made on a number of dairy management fronts. As producers and their advisors meet in the conference room (or kitchen), herd nutrition may be one of the most debated and diverse conversations of all.

By Brad Clyburn

When management discussions with your dairy advisors get around to nutrition, feed additives will likely raise a number of questions. One nutrition conversation that should be on the table concerns direct-fed microbials (DFM). DFMs are getting a closer review, based on their reported benefits in both herd health and production. Since there’s no doubt saving money on veterinary bills and squeezing a few more pounds of milk out of each cow would help your bottom line, here are a few starter questions to explore.

Brad Clyburn, Ph.D., is Key Account Manager with Chr. Hansen Animal Health & Nutrition. Contact him via phone: 817-718-6996; e-mail: USBDC@chr-hansen.com or visit www.chr-hansen.com/animal-health

Brad Clyburn, Ph.D., is Key Account Manager with Chr. Hansen Animal Health & Nutrition. Contact him via phone: 817-718-6996; e-mail: USBDC@chr-hansen.com or visit www.chr-hansen.com/animal-health

1) What are DFMs?

The U.S. Food and Drug Administration (FDA) doesn’t allow the term “probiotics” to be used in our industry. For humans, you find probiotics in products you consume every day, such as yogurt and cheese. We broadly call these “beneficial bacteria,” since they contribute to good health and even some levels of immune response. However, there are also pathogenic (bad) bacteria that can negatively affect your health.

Your dairy herd is also exposed to both good and bad bacteria, and their health and performance could be also be compromised. Ask your nutritionist about how these bacteria may affect your cow’s health and performance, much like good and bad bacteria can affect your health.

2) What is the science behind DFMs? How do they work in the rumen?

A DFM is a beneficial bacteria that helps balance the intestinal microflora. In dairy cows, this specifically means managing the amount of lactic acid in the rumen. It’s well known that excess lactic acid in the rumen can contribute to health-related issues, such as acidosis. Certain DFMs have been proven to provide bacteria which consumes lactic acid, thereby helping provide a level of acidic control. Ask about other issues or challenges related to excess lactic acid in the rumen.

3) What benefits will I see by using DFMs?

Research proves that a continual feeding regimen of DFMs can have significant improvements in both health and production. Because the rumen is in better balance, the cow’s dry matter intake (DMI) can improve. The result of increased DMI is better health and production. In fact, research from Chr. Hansen Animal Health & Nutrition demonstrates 3-5 lbs. more milk, along with improvements in fat and protein yields. Ask to see data on this kind of performance, and discuss how improved DMI can positively affect cow health.

4) When should I consider using DFMs?

Continual feeding of DFMs in all groups is recommended, but since each operation is managed differently, you should discuss some of these common scenarios when a DFM can have the most impact:

• at birth. The intestinal tract of newborns is basically sterile, which provides the best opportunity for introducing the beneficial bacteria found in DFMs.

• during weaning or other diet change. At weaning, a young animal’s digestive system is not fully developed to efficiently change from milk to plant-based rations. Additionally, any time the forage changes the cow’s rumen undergoes a period of stress as she adjusts to the new forage.

• during periods of stress. Handling, shipping, vaccination, weather changes and extremes, surgery and other situations can put stress on the animal, resulting in reduced appetite and feed intake and weight loss.

• after antibiotic therapy. Antibiotic treatment often lowers the number or growth of Lactobacillus and other beneficial microbes in the digestive tract. DFMs assist in replenishing these beneficial bacteria, resulting in a quicker return to a balanced intestinal microflora.

• daily feeding. Since many stressful situations can’t be anticipated, daily feeding is recommended as a preventive measure. DFMs have been shown to improve animal performance and health when included in the diet.

5) How do I select a brand?

By law, DFM product labels must indicate a cell count guarantee. Be sure to compare labels for this guaranteed analysis and investigate the packaging. Many products are shipped with live bacteria, but arrive on the farm dead because they were improperly packaged. Good packaging technology can keep bacteria alive without refrigeration. Discuss reputable manufacturers that:

• have a core competency in all aspects of microbiology, including the selecting, growing, harvesting and stabilizing of microbial cultures.

• have food-grade manufacturing facilities that follow FDA guidelines and practices.

• have highly concentrated and stable products that do not require refrigeration.

• meets all HACCP food safety criteria.

• guarantees the level of viable organisms.

• has conducted extensive university research to support product effectiveness.

FYI

Brad Clyburn, Ph.D., is Key Account Manager with Chr. Hansen Animal Health & Nutrition. Contact him via phone: 817-718-6996; e-mail: USBDC@chr-hansen.com or visit www.chr-hansen.com/animal-health


IDFA Dairy Forum 2010: CEO Tipton outlines challenges, opportunities

Almost 900 dairy industry leaders representing nearly sector of the dairy industry pipeline gathered in Phoenix, Ariz., for the International Dairy Foods Association’s Dairy Forum 2010.

In her annual address, IDFA president and CEO Connie Tipton called for industry involvement, innovation and unity as the best ways to combat a sluggish economy and unleash the industry’s potential for growth and success. She reviewed issues affecting the dairy industry, including:

1) government economic and social policies that negatively impact the business climate;

2) regulations and government mandates, especially covering food safety and labeling;

3) changes in diet and nutrition guidelines, including policies impacting federal and school feeding programs that could limit dairy;

4) energy and environmental policies that will change dairy processes, marketing and business strategies;

5) dairy policy “safety nets” and trade policies that limit dairy trade potential; and

6) changes in consumer trends requiring  increased innovation and consumer education.

Touching on the dramatic changes emerging from the Obama Administration and Congress, Tipton warned that a flood of new regulations, taxes and mandates may soon become laws of the land. From health care to food safety, nutrition to cap-and-trade, the industry needs to oppose unnecessary regulations or unjustified fees that will add costs to production without providing benefits to dairy consumers,

she said.

“There are businesses and industries that simply cannot weather additional costs in an increasingly competitive and regulated

marketplace,” Tipton said. “Our industry is not immune to these risks. So we have a real stake in what comes out of this very political process in Washington.”

She said some nutrition initiatives being promoted by the Obama Administration place dairy at the center of dietary restrictions, especially regarding fat and sodium. She warned needless nutrition meddling – such as restrictions on flavored milk – could lead to a decline in dairy consumption, despite its powerful nutritional package. She said efforts related to childhood obesity that target dairy couldl have a detrimental impact on health.

Tipton also pointed out that the past year of “devastating milk prices,” dropping export levels and consumer belt tightening clearly showed that the “so-called safety net programs for our dairymen” don’t work in today’s market economy.

She offered highlights from a comprehensive National Milk Producers Federation plan for reformatting dairy policies and programs. Acknowledging that the plan would affect different businesses in different ways, Tipton encouraged industry leaders to abandon the status quo and give the plan serious consideration.

By doing so, she added, “The U.S. dairy industry has a chance in 2010 to re-chart its future, to build a better, stronger, more cohesive

community, energized at last by genuine teamwork and breakthrough thinking.”

Tipton said the Obama Administration has been slow to promote international trade talks. She expressed hope that days of export subsidies were coming to a close, and that dairy policy reforms – including potential elimination of the Dairy Product Price Support and Milk Income Loss Contract programs – could help promote dairy product innovation and trade.

Despite the debate surrounding climate change and sustainability issues, the dairy industry is moving forward through the Innovation Center for U.S. Dairy to address “green” values held by consumers, including steps to reduce dairy’s “carbon footprint” throughout the production and marketing chain. Those efforts have the potential to change dairy production, processing and marketing practices.

Another lesson the industry learned last year, Tipton said, is that it must listen closely to consumers and provide innovative ideas, products, ingredients and packaging to meet their needs.

The recent economic downturn has resulted in changes to consumer eating habits, with more people eating a greater portion of their meals at home. Consumers are also more frugal in making purchasing decisions, while seeking information on the source and health/wellness aspects of the food they are eating. Dairy has a good story to tell, she said, and should promote itself better, while adjusting to the changing tastes and lifestyles of consumers.

“Fundamental to our success will be how well we compete for the consumers’ palate – at home and around the globe. We need more people eating dairy and choosing dairy ingredients – and that means we’d better know what consumers are thinking and what’s tickling their taste buds,” she said.

She concluded with a call for industry leaders to confront the current policy climate and all industry challenges with resolve and teamwork.

“It’s the only way we can progress, the only way we can win, the only way we can realize the kind of success we all know is possible – the success that is within our grasp,” she said.

Tipton’s complete speech is available in the News & Views section at www.idfa.org.


Editor’s Update: Advisory ‘advisory’

By Dave Natzke

The list of who’s on USDA’s Dairy Industry Advisory Committee was released in early January. Not to downplay future efforts or the quality of individuals on the committee, but don’t bet the farm on any dairy policy consensus. Don’t even bet last November’s small Milk Income Loss Contract Program payment.

First, the players. The 17-member panel includes nine producers or producer group representatives, four processors, and four people representing government, academia, retail and consumer interests (see list).

USDA Dairy Industry Advisory Committee

Name State Affiliation

Paul Bourbeau Vermont Paboco Farms Inc.

Jay Bryant Virginia Maryland /Virginia Milk Producers Co-op

Erick Coolidge Pennsylvania Le-Ma-Ra Farm

Timothy Den Dulk Michigan den         Dulk Dairy Farm, LLC

Debora Erb New Hampshire Springvale Farms/Landaff Creamery, LLC

James Goodman        Wisconsin Northwood Farm

James Krahn Oregon Oregon Dairy Farmers Association

Edward Maltby Massachusetts Northeast Organic Dairy Producers Alliance

Rodney Nilsestuen Wisconsin Wisconsin Department of Agriculture

Andrew Novakovic New York Cornell University

Robert Schupper Pennsylvania Giant Food Stores

Manuel Souza California Mel-Delin Dairy, Western United Dairymen

Patricia Stroup California Nestle

Sue Taylor Colorado Leprino Foods Co. Inc.

Edward Welch Minnesota Associated Milk Producers Inc.

James Williams Georgia Williams Dairy Trucking

Robert Wills Wisconsin Cedar Grove Cheese Inc.

A diverse group, to be sure. The committee is charged with reviewing issues such as farm milk price volatility and dairy farmer profitability, and provide suggestions and ideas on how USDA can best address these issues – presumably through reforms of programs, policies and rules. Sounds like walking orders for consensus building to me.

While I am frequently called a naive optimist when it comes to groups of people working together toward a common goal, good luck with that. Any group that is long on diversity is generally short on consensus. Committees and commissions with even narrower ideological spreads than those represented by this group have tried – and failed – to come up with consensus on dairy issues even narrower in scope.

All members will serve two-year terms, beginning in January 2010, and expiring Jan. 1, 2012. That puts a timeline for any potential policy recommendations sometime around the 2012 Farm Bill.

The first meeting is planned for early 2010, and USDA is urging public participation. The first meeting should probably be a BYO, so we won’t dwell on what type of milk is served at breaks. Then, start with some ground rules: How about no “big” vs. “small”; East vs. West; private vs. co-op? Healthcare reform will seem like a cakewalk.

Any politically appointed group is bound to have political leanings. At first blush, the list seems tilted toward the East: Counting Minnesota, just five are from west of the Mississippi River; just four of the 17 appointees are from “Western” states. It’s probably of little relevance, but President Obama won 17 of the 23 major dairy states in the 2008 elections. Just one of the 17 advisory committee members isn’t from one of those Obama-leaning states – or at least they leaned that way in November 2008.

I know few of these folks personally; some professionally; some by reputation, having covered dairy issues for a couple of decades.

One blog site I checked lauded the selection of a couple of the advisory committee members, but called everyone else “Farm Bureau types,” which seemed like an odd statement, given the appointments were made by a Democratic administration.

Another group, with different political leanings, expressed the opposite sentiments. Their hope is that nothing gets done, because anything that comes out of this group will likely be detrimental to U.S. dairy.

While policy compromises are often judged on how equally unhappy all sides end up, it sounds like a hung jury to me. In reality, USDA is probably in a “no-win” situation. If the industry can’t reach consensus on its own issues, how can we expect the government to do it?

So, we can all feel good about having an “unbiased” group meeting in one room to discuss future dairy policy. But being in one room isn’t close to being of one mind.

If any members of the committee read this, I hope they don’t take this column as a criticism, but rather as a challenge. I was raised not to criticize unless I had a solution. In this case, I’m not sure can come up with one.

There’s wisdom in the old joke: How do you eat an elephant? One bite at a time. Dairy seldom can agree on where to take the first bite, and usually argues over who go the biggest piece. But hope springs eternal, so here’s hoping … for something.

U.S. Ag Secretary Tom Vilsack actually had two options in creating panels to look at dairy issues. In addition to the newly formed Dairy Industry Advisory Committee, the 2008 Farm Bill called for creation of a federal milk marketing order commission. However, because Congress failed to approve the necessary funding for that commission, USDA said it would not create it.

You can follow Dairy Industry Advisory Committee activities at www.ams.usda.gov/AMSv1.0/DairyAdvisoryCommittee.

The proliferation of ‘it’

I don’t remember when I started noticing “it,” but I know it wasn’t as prolific when I started down my ag journalism career path in 1978. My 30-plus years of reporting on agriculture spans the administrations of Presidents Carter, Reagan, Bush I, Clinton, Bush II and Obama, three of which served in office for 8 years.

The “it” I’m talking about is typically tagged on the end of press release from a government agency (in this case, USDA). Although in a variety of forms, the message is always similar: “We’re from the government, and we’re helping you.”

Usually more political than newsworthy, the summary generally includes some evidence the current Administration really, really, really cares about you, and the proof is a regular reminder of programs and money the current officeholder and his staff have bestowed on you and your industry.

I can’t say the current administration is any worse than others, but “it” has become more noticeable. I guess you can’t blame them, now that presidential elections are a four-year (or longer) process, and policy victories are often measured in political points. Seems a bit ironic, however, that we have to be constantly reminded the government is doing something it was elected and hired to do.

FYI

To offer your own opinion or response, e-mail Dave Natzke, national editorial director, DairyBusiness Communications, e-mail:dnatzke@dairybusiness.com.

Success Strategies: Changing our viewpoint

By John Ellsworth


As you proceed through a new year in 2010, it will be beneficial to change the way you approach your dairy operation. Most producers will be excited about changing the way they look at their business, particularly following the brutal results achieved in 2009.

However, the first step to attaining different results will be to change the way we think. In their book entitled, “Change the Way you See Everything,” authors Kathryn Cramer and Hank Wasiak remind us that we need to “Leap out of bed with your vision turned on! The difference between a person who is vitally engaged in life and someone who is merely going through the motions is a vision fueled by passion.”

They go on to describe some of the “side effects” of this passion: enthusiasm, confidence, optimism and unbridled conviction. Sounds like a wonderful change after 2009, doesn’t it?

The ‘how to’ of it all

So, how do we get there? How do we increase our passion levels for the dairy business? To start, I believe it is beneficial to review what one of my favorite economists of all time had to say. The Italian economist Vilfredo Pareto stated that: “Increased productivity comes from continually identifying areas where you can achieve 80% of your results from 20% of your efforts.”

You know this as Pareto’s Law or the 80/20 Rule. Can this work on your dairy business? I believe so. However, this is not an invitation to take shortcuts. Rather, it is an opportunity to identify those areas with the greatest payback for your efforts and to spend your time on those specific areas to produce the most optimal results!

So what are those areas that will produce the most optimal results? Only you can answer that question. However, as usual, I am happy to provide you with a couple examples.

Examples offered

I work with a client with whom I hold management team meetings once per month. During a recent meeting, one of the partners mentioned to me, in private, that his brother was not spending as much time as he was “out with the cows.” While I recognized this, I believe it is important that we apply Pareto’s 80/20 Law here. The same partner who was not spending as much time with the dairy herd had just completed a negotiation with one of their vendors that provided them with a savings of $40,000! Could your operation have benefited from an extra $40,000 in 2009? That result appeared to me to be an excellent example of applying Pareto’s Law.

A second example that comes to mind was with a client whose son was also not spending as much time with the cows as his dad would have liked. However, the son had managed, through the use of some fixed price contracting, some “Put Options” and several “Call Options,” to achieve an overall milk price of nearly $14/cwt for all of 2009.

Was this smart?

Absolutely! Can he pull this off every year? Probably not. However, his actions in 2009 provided their business with a substantial benefit at a very crucial point. Management guru Peter Drucker stated that “the business enterprise has two basic functions – marketing and innovation. The rest are all costs.” Managing this producer’s margin is an excellent example of how using innovation, in conjunction with Pareto’s 80/20 Law, can provide your business with solid benefits.

Focus efforts

What are the areas within which you need to focus more of your efforts? What activities will provide you with the largest return on your investment of time? Is it your milk marketing? How about your overall business planning and goals for 2010? How about making sure that your business is positioned for maximum success this year?

Phone on ‘silent’

I don’t know what will be the best area for you to focus on. However, I do know that if you put your phone on “silent” for 60 minutes and give this issue some thought, you will come up with the right answer.

As a result, you will likely find that you stay on track and hit your business objectives more often. In particular, this becomes more likely just because you have developed an improved process, centered on your desired outcome. Give it a try. I think you’ll be glad you did!



“Wherever you see a successful business, someone once made a courageous decision.”

~ Peter Drucker

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.

It’s your money: Do you have someone like this working for you?

By Verlyn De Wit

He is always on time. He takes care of your dairy as if it were his own. If you need to go away for a few days or a few weeks, you rest easy.  This key employee is crucial to the success of your business.  Let’s call him Frank.

You’d like to see Frank stay with your dairy for the long run.  But you know that other opportunities are bound to come his way.  How do you fairly compensate Frank and motivate him without selling him ownership in your business?  Perhaps you’re a little strapped for cash right now but you would like to paint a big picture for Frank’s future.

To regular readers of this column, you may have the feeling that you’ve already met Frank.  A few years ago we discussed a concept called “Golden Handcuffs.” (See below) But for some employees, the future is NOW and golden handcuffs are too far off to hold their attention.

A typical “Golden Handcuffs” agreement might promise Frank that:

• If he stays with the dairy until age 60, you will continue to pay his salary of $40,000 per year for 5 continuous years after his retirement.

• If he dies before age 60, you will pay his salary of $40,000 per year for 5 continuous years to his family.

• If he becomes disabled before age 60, you will continue his salary at $25,000 per year until retirement.

Incentive plans

Some operators award bonuses based on specific measurements. You could give Frank a percentage of your dairy’s cash flow, or a percentage of the profits. Maybe you decide to award a bonus based on milk production levels or cull rates – you name it. This allows you to focus on one or more specific areas that you think need improvement in your operation. However, in motivating or keeping your key employee over the long term, these approaches may become ineffective and isolated from the total picture.

Phantom stock

Is your operation strapped for cash right now? Perhaps you should consider a Phantom Stock Plan. Essentially, a Phantom Stock Plan provides an employee with a bonus based on the increase in the value of the business. Giving Frank a bonus based on paper profits may be like the carnival barker’s shell game – creative accounting can make profits disappear and Frank is grudgingly holding an empty bag. But Phantom Stock would take all issues into account. The value of livestock, inventories on hand, and debt  (just to name a few) are used to determine the value of your business, and Frank’s Phantom Stock bonus.


Check the numbers

For example, let’s say your dairy has a market value after debt of $4,000,000. You agree that if Frank is still working for you three years from now, you will give him 1 unit or 1% in the business. While this unit does not technically represent ownership in your dairy, it does contractually allow Frank to: 1) cash it in at this point for $40,000, or 2) keep it as long as he works for you  in hopes that it will increase in value. Use your own imagination here, but you could offer Frank a unit, or one-half unit, of the business every third year he stays with you. If your operation  is short on current liquidity but long on growth, Frank enjoys the ride with you. His units continue to grow in value.

Pick and choose

Another advantage of Phantom Stock is that it is not a qualified plan. You can pick and choose who you offer the plan to, Frank may be the only employee you give this special benefit to.

The state of California requires the filing of form 25102(o) within 30 days of the issuance of a regular stock option. Phantom Stock Plans do not require such filings. One difficulty with Phantom Stock plans is that a method of valuing the dairy will need to be established. Over time, other issues such as subsidiary operations and removing equity to start a second enterprise may cloud the picture and require modification of your terms with Frank.

Taken to its desired conclusion, Frank works for you 30 years and gains 10 units or 10% of the operation in our example. Any cash eventually paid to Frank is reported as expense to you and income to Frank.

Lower cash outlays for you now and a big long-term picture for Frank. The Phantom Stock Plan offers some very appealing benefits.

FYI

Verlyn De Wit helps successful dairy producers make smart decisions about their money.  He can be reached toll-free at 1-888-468-1728 by e-mail at vdewit@sammonsrep.com or snail-mail at 1270 Eastside Dr., Sioux Center, IA  51250. Securities offered through Sammons Securities Co., LLC. 4261 Park Road, Ann Arbor, MI  48103. Member FINRA and SIPC.

Neither Western DairyBusiness nor Verlyn De Wit is qualified to offer legal or tax advice. Consult your attorney and/or tax professional for a qualified opinion regarding your personal situation.

Milk Matters: Dairy producers 
are the greatest nutritionists

By Joseph O’Donnell


What does the tiny shrew have in common with the great blue whale? They are part of a specific order of animals called mammals distinguished by their unique ability to produce milk. In the animal kingdom, milk production is a successful strategy for survival. With that kind of pressure, it’s little wonder that milk is nature’s perfect food.

Getting it right

In order for milk to work as a successful delivery system for complete nutrition it has to get more than a few things right.  First, it has to be efficient and economical (just like successful dairy producers).

The mother mammal can’t invest a lot of excess energy or material into making milk without a solid return on that investment. That means milk has to deliver the basic essential nutrients like amino acids (protein), minerals, vitamins, fat and energy in a way that is digestible.

This milk must also provide the functionality needed by the newborn such as defense mechanisms to protect against nasty bacteria, satiety triggers so it knows when to stop eating, and a host of other inherent needs specific to the neonate.  This is amazing stuff.

Complete nourishment

We know that milk, regardless of its source, shares similar traits. Humans figured out early that cow’s milk provided a source of complete nourishment and then figured out how to domesticate that source of nourishment in order to survive and thrive.

That innovative process is not unique – we’ve applied it to all of our current food sources. Nothing we call food today – animal or vegetable – resembles its original source. The tomatoes we eat now are a far cry from the belladonna-laced first tomato; the corn we use for food and fuel wouldn’t recognize its ancestor from centuries ago; and the yields possible with today’s rice crops overwhelm those of centuries past. When you consider the advantages of a biological system that converts grass to the most nutritionally complete food in the world, the motivation to domesticate milk becomes pretty obvious.

Needs change

After weaning, our nutritional needs change, so does our ability to digest a greater variety of foods. We start with mother’s milk as a baby and move on to commercial milk and dairy products as we grow into adulthood. Young, old, big, small, male or female – each of us bears a unique and very personal physiology.

My nutritional needs are different than your needs; indeed, my nutritional needs today are different than even 10 or 20 years ago. Whatever those needs might be, milk is part of the solution to bringing a balanced diet for everyone. Granted, not everyone can consume fluid milk for a number of reasons, but dairymen have invested in technology that can sort out all the parts of milk and reformulate them to make a product that YOU can use, whoever you might be.

With a natural product like milk that represents such a brilliant strategy for nutritional success, we have a responsibility to understand its secrets to improve nutrition for everyone.

Dairy research

Dairy producers are meeting that responsibility through their support of dairy research. What we learn from this unique product can be applied to other food sources to achieve a balanced diet. Dairymen have taken on the responsibility to produce milk and to find a way to bring its natural nutrition to all the world’s people – that makes them the world’s first and greatest nutritionists.

FYI

Dr. Joseph O’Donnell is executive director of the California Dairy Research Foundation. He can be reached at 530-753-0681.

Information on the California Dairy Research Foundation can be obtained from the organization’s web site at www.cdrf.org.

Southwest DairyBusiness: Corn research targets drought tolerance, aflatoxin genes

COLLEGE STATION, Texas – Scientists plan to put two and two together in a study that will likely yield improved U.S. corn quality and yields.

Two traits that impact corn will be examined by two researchers hoping to use basic scientific discoveries to improve products at the farm level.

Drought tolerance and aflatoxin resistance are the targets of the study by Texas AgriLife Research scientists who have been awarded a $500,000 grant for the project by the U.S. Department of Agriculture.

The idea is to use basic science which identified the drought- and aflatoxin-related genes in the lab of Dr. Michael Kolomiets and apply them in corn breeding through the expertise of Dr. Seth Murray. Kolomiets is a plant pathologist and Murray, the project’s lead investigator, is a corn genetics researcher.

“We plan to use basic knowledge we learned from previous studies and translate that through breeding corn for drought tolerance and aflatoxin resistance,” Kolomiets said.

The “basic knowledge” stems from discoveries Kolomiets has made in researching a 13-member family of genes called LOX, or lipoxygenase.

He said one LOX family member is connected to a plant’s drought response while another is linked to aflatoxin development.

“A geneticist basically has to break something to see how it works,” Kolomiets said. “So in this case, we were able to shut down each gene in the lab to decipher what its function is for the plant biology and the plant’s ability to respond to environmental stresses.”

It seems that one of the LOX genes is “hijacked” when droughty conditions are ripe for the Aspergillus fungi to ride into the plant with its toxins. Yet another member of the gene family is the reason for plant aging and death once the plant is under severe drought stress.

Lipids – the fats and oils in plants like corn, soybeans, peanuts, tree nuts and cotton – are sought out, it seems, by pathogens like fungi. So, Kolomiets reasons, preventing the gene hijacking – via a mutation of the gene that has been shut down – will help corn plants avoid problems with these weather-related maladies.

Drought is a recurring problem for corn producers – especially in the southern U.S. and throughout other parts of the world. Aflatoxin, which becomes prevalent in drought years, is a serious issue because it renders corn inedible for humans as well as for many livestock, depending on the content level. Both of these concerns cause a blow to the economy when the corn supply is cut by lower yields or poor quality, the researchers pointed out.

“Loss in Texas from mycotoxins (mostly aflatoxin) was $13 million in 2008 – the highest in the nation,” according to the researchers.

Murray and Kolomiets began the four-year project in January. They will be assisted by Dr. Tom Isakiet, Texas AgriLife Extension Service plant pathologist, who will train graduate students for the project.

FYI

To contact Dr. Michael Kolomiets, Texas A&M, call 979-458-4624, or e-mail him at kolomiets@tamu.edu.


Over-regulation shuts down digester technology

By Ron Goble

VISALIA, Calif. – About a little more than five years ago, dairyman Ron Koetsier bought a used generator from a waste water treatment plant in some obscure Wisconsin town after officials there determined that it wasn’t cost effective for them to operate it on methane gas anymore.

That same generator is sitting idle again today in California – the victim for a second time from high-cost energy systems and emission levels.

Huge investment

Koetsier had invested $998,000 to convert his dairy operation to a digester system that was projected to produce a significant amount of his own electricity to run the dairy.

He purchased a $130,000 truck outfitted with a vacuum system to suck up tons of manure from his freestall barns and transport it into his covered lagoon. Milking 1,150 Holsteins 2x, the manure production is also significant.

“The vacuum truck was a good system when diesel fuel was 50-cents a gallon,” said the dairyman. “However, when diesel climbed to $4 per gallon it was costing us about $100 a day for fuel.”

On Jan. 1 2009, new regulations became effective from the San Joaquin Valley Air Pollution Control District that would require Koetsier to retrofit his engine and add a special catalytic converter and other required contraptions to cut emissions. NOX emissions had to be cut to 150 ppm. Right now Koetsier’s permit states that his “engine is dormant.”

If Koetsier let that permit lapse, the latest regulations calls for new engine installation emissions to be under 8 ppm.

“I haven’t seen a motor yet that is doing that well,” he declared. “Diesel is still $2.50 a gallon, so I’ve parked the truck and am considering other options.

“A scraper system to get manure out of the building will eliminate the labor and fuel costs. However, the dairy business has to get a whole lot better before I think of making that kind of investment, especially with Congress considering the expensive ‘Cap and Trade’ measure that is full of fees and taxes for businesses,” Koetsier said.

After the original investment in the digester technology, the dairyman applied for a performance grant through Western United Resource Development provided for by Senate legislation. That measure called for the dairyman to get paid 5 1/2-cents per kilowatt for energy that produced electricity on his dairy. He could have collected about $150,000 from WURD if he had kept the system going.

Economics didn’t pencil out

Some dairy operators are operating on a waiver to establish a baseline for system performance. Then regulators will determine what emission standard they would set based on what the system produces.

Pick a number!

“The Air Resource Board picked a number for emission standards, as a compromise between the enviromentalists and the dairy industry,” said Koetsier. “The Air Board has to decide whose most credible. The National Dairy Board spent $6 million on air emission study to get real numbers on what emissions are, but the Air Board made the call 5 years ago without the science.

“It’s the same thing they are doing with automobile motors. They decree a miles-per-gallon number and then expect industry to be able to make it happen. About the only way that’s possible is to have everyone driving those tiny Smart Cars,” he said.

Those in the position of regulating don’t care if you go out of business or not,” the dairyman said. “You can go out of business or move out of the state. The hay day for the dairy industry in California is over. More people are leaving California than are coming.”

Koetsier’s system ran about two years before he spent another $300,000 to retrofit to meet the newest standards. He started the digester in 2003 and ran it into 2008.

His dairy’s energy bill was usually about $60,000 to $70,000 a month. When generating their own power, Koetsier estimates they saved in reality only about $40,000 to $50,000 a year in electrical costs.

The utility billed $2,000 a month standby charges, just to be hooked into the electrical grid. Southern Cal Edison would only offer net metering – they wouldn’t pay you while collecting demand and hookup charges. Probably half of the dairy’s energy savings were burned up by high fuel costs, he said.

Koetsier said that until regulators focus on real sicentific research in setting their emission parameters, dairy producers will continue to struggle with trying to meet a moving target to be in compliance with environmental regulations. Whether it is CO2 or NOX emissions being regulated, there are too many political decisions being made that impact producers’ ability to run a profitable dairy operation.

FYI

To contact Ron Koetsier, e-mail him at dairyron@aol.com.


Opinions & Sacred Cows: Alpenrose Dairy in Oregon spotlight

By Ron Goble

It’s not often that a dairy grabs the spotlight in the high-powered world of corporate culture. But at the end of 2009, Alpenrose Dairy, a family-owned Portland-based company for more than 90 years, was named “Oregon’s No. 1 Most Admired Company.”

Alpenrose Dairy topped the list of several distinguished honorees, including Reser’s Fine Foods, Boyd Coffee Company, Widmer Brewing Company and Pacific Seafood Group.

“We are truly honored to receive the award for most admired company in the state,” said Rod Birkland and Carl Cadonau Jr., copresident of Alpenrose Dairy. They gave credit to their hard-working employees.

More than 1,800 Oregon CEOs and top-level managers voted for the 2009 Most Admired Companies in Oregon. Companies were ranked on attributes such as innovation, quality of products and services, customer service and community involvement. Award recipients were selected from eight industry categories including: agriculture, technology, professional services, commercial real estate, health care, nonprofits, forest products, financial services and traditional manufacturing.

It is obvious to those who voted that Alpenrose is more than just a dairy. You need to look at Alpenrose history to understand their culture. In the 19th century, the rolling hills southwest of Portland were dotted with dairies largely operated by Swiss and Dutch immigrants. One of these pioneer dairymen was Florian Cadonau. In 1891, with an entrepreneurial spirit, he began delivering milk in three-gallon cans by horse-drawn wagon to a restaurant in downtown Portland.

Florian’s son, Henry Cadonau, married Rosina Streiff, daughter of the Swiss consul in 1916. Rosina named the business Alpenrose Dairy, after Switzerland’s national mountain flower that bloomed in the Swiss Alps.

In 1918, the Cadonau’s purchased a four-year-old Ford touring car and converted it into a delivery truck for the dairy’s growing list of customers. By 1922, Henry and Rosina had taken over full ownership of the business and things began to happen. In 1951, there were 64 retail routes and by 1961, that number had doubled, not counting the dairy’s 32 wholesale routes.

Before Kevin Costner starred in “Field Of Dreams,” Henry Cadonau had a vision and built a baseball diamond in the backyard for the grandkids. Since then, kids from down the street and around the world have played ball at Alpenrose Park.

Nearby is Alpenrose Velodrome, a high-banked, Olympic-style bicycle racing track. The velodrome is one of only 20 professional tracks in the U.S. and has been host to both national and international events. While Cadonau loved cows, his son-in-law, Ray Birkland loved cars. In 1950, he built a Quarter Midget racing track for the kids. He became a member of Quarter Midgets of America, and started sponsoring races at the track, which was paved six years later.

With an eye on history, Alpenrose created Dairyville, where families can stroll through a replica of a Western frontier town. It’s a fun, educational way to see how life used to be, with false-front shops, old ice cream parlors, antiques and other reminders of a remote era. Best of all, it’s free.

Alpenrose Dairy provides Oregon and SW Washington with fresh locally produced products such as: cultured, fluid, organic milk; cottage cheese, sour cream, egg nog, and ice cream. But also extremely important in the company’s success has been its role in supporting the local community. For decades, Alpenrose has been the host to several local events, including the popular Alpenrose Easter Egg Hunt, Velodrome Challenge and the Girls Little League World Series, to name a few.

Dairy producers everywhere can learn from the Alpenrose Dairy story and focus not only on producing great dairy products, but also on being even greater neighbors.


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