Archive for February, 2010

Middle East dairy trade opportunity: It takes work

Editor’s note: Dairy Profit Weekly editor Dave Natzke is part of a U.S. dairy industry team participating in a Middle East information mission in Dubai,  in the United Arab Emirates (UAE), Feb. 20-26.

The Middle East’s growing population and social changes make it an attractive dairy export market. While logistics and prices put many U.S. companies at an economic disadvantage with companies in the European Union (EU), New Zealand and Australia, the potential market is too great to overlook, U.S. dairy trade representatives were told here this week.

A U.S. dairy industry team is participating in a Middle East information mission in Dubai,  in the United Arab Emirates (UAE), Feb. 20-26. The mission includes visiting Gulfood (http://www.gulfood.com/), the Middle East’s largest food exhibition for the foodservice and hospitality business, and includes meetings with key U.S. customer and marketers of U.S. dairy products and ingredients to the Middle East.

Dairy producer participants include Kenton Holle, Mandan, N.D., Paula Meabon, Wattsburg, Pa.; and Paul Rovey, Glendale, Ariz., who all serve on the Dairy Management Inc. board.

On the first day of the trip, U.S. Dairy Expo Council (USDEC) staff and regional representatives briefed the group on current dairy trade activities in the 23-state League of Arab States. Nina Bakht, Middle East USDEC director, also summarized food and dairy production and trade activities of the 15 individual nations making up the Gulf Cooperation Council.

Bakht said price sensitivity is important to dairy sales to the region, but personal business relationships are critical. “Phone calls must follow high-tech business,” she said, including inquiries about their personal well-being.

Since location and Free Trade Agreements with EU and Oceania have a significant negative impact on U.S. price competitiveness in the region, USDEC is focusing on business-to-business relationships to boost U.S. dairy sales. USDEC, which worked with just 13 U.S. dairy companies to export products to the Middle East in 1999, worked with 41 U.S. companies in 2009.

Competitive situation

The arid climate of the Middle East makes it a milk-deficit region, with many countries importing a majority of their food. Dairy is a traditional part of the diet in the Middle East, with a long history of consuming white cheeses, yogurt, butterfat and milk powder. For example, per-capita dairy consumption in the UAE, for example, is on par with the United States. People in Saudi Arabia consume a little less than half what their U.S. counterparts eat.

The two major dairy importing countries are Saudi Arabia, which imports about half of its domestic needs, and the UAE, which imports more than 90%. Most of the milk that is produced in the region goes to fluid and fresh dairy product production, leaving opportunities for imports of cheese, whey and milk powder.

The EU is the leading dairy supplier to the Middle East, with a market share across the region of about 30%. New Zealand supplies 20%-25%; Australia, about 10%; with the United States accounting for 5%-10% of overall imports on a milk-equivalent basis, including about 4% on cheese and about 30% on whey proteins.

U.S. dairy exports suffered in 2009, and business with the Middle East was no exception, in part due to competitive forces, as well as the global financial crisis that hurt dairy product buyers’ demand and credit availability. Sales growth in 2007-08, when U.S. prices were  favorable relative to world prices, were lost in 2009 when that relationship reversed. U.S. sales to the region (by volume) were down by about 50% from the prior year. New Zealand increased share due to aggressive pricing that U.S. suppliers couldn’t match. Reinstatement of export subsidies enabled the EU to pick up share.

The United States has not been a consistent supplier of dairy to the region. U.S. companies provided 3% of total cheese imported in 2007; rose to 8.8% in 2008; fell back to 3.2% in 2009; and is expected to climb to 4.5% in 2010. Sweet whey concentrates saw a similar fluctuation: 2007 – 27%; 2008 – 27%; 2009 – 11%; and anticipated in 2010 – 17%.

The absence of Cooperatives Working Together (CWT) export assistance took some U.S. suppliers out of the market last year. In 2008, nearly 12,500 tons of butterfat was shipped to the region with benefit of CWT bonuses.

Bakht said the best opportunities for U.S. dairy exports to the Middle East include: cheese for the GCC retail and foodservice sectors; cheese, whey protein and skim milk powder (SMP) for Egypt’s food processing sector; and SMP and whey proteins for Saudi Arabia and the UAE.

Importers’ add insights

Housam Houriky is business development manager for True Bell, UAE’s largest importer of cheese, primarily Italian cheeses from France, Switzerland, the United Kingdom and Australia. It serves the foodservice, retail and high-end hotel industries. To capture a foothold in the market, U.S. companies must focus on branded products that are recognized by consumers. He said EU suppliers promote brands, not commodities.

Ali Noor, commercial manager for Jordan’s Kaylani Food Center, imports some U.S. cheese, primarily cheddar and mozzarella. He said EU companies – with help from their governments – tend to provide much more promotional support for dairy products. Additionally, EU companies are more receptive to creating product labels in Arabic, and do a better job of creating products that meet Middle East specifications.

Emeel Moukarzel, deputy managing director for Green House, an UAE importer, said U.S. companies have traditionally overlooked the Middle East as a potential market, citing a small market and cost-benefit ratios. Citing potential marketing growth in the region, however, he urged U.S. companies to get a foothold in the region.

Consistency: SOPS help drive profitability

HUMAN RESOURCES

by FELIX SORIANO

Consistency is a key driver of profitability in any dairy operation. From feeding, to milking routine, to calf care procedures, we always preach about the importance of day–to-day consistency in every process. “That’s what the cows like and need!” we tell our employees. But what do you do as a manager or supervisor to reduce variability at the dairy? Do you have a standard operating procedure (SOP) for every process at the dairy? If you do, when was the last time you reviewed those SOPs to try to improve efficiency or find ways to reduce cost in a process?

SOPs are critical to reduce variability between working shifts and within employees from a same shift. These SOPs will be also helpful during the training process of a new employee or when refreshing protocols with old employees.

A good SOP specifies, in writing, what should be done, how, when, where, and by whom. Here are a few tips that will help you write your own SOPs or evaluate the protocols that you already have in place:

Be very concise, clear, and use simple words when writing an SOP. Wordy and long sentences will be confusing to the operator/employee.

Use steps and sub-steps to simplify the procedure. Also, using pictures and a brief, but detailed description of each step of the procedure can be very useful (especially for employees who may have difficulty reading).

Consider using a flow-chart format to simplify the process when writing procedures of tasks that require a lot of decision making. A good example of this would be a calf diarrhea treatment or a mastitis treatment protocol.

Spend time observing employees perform the task before writing an SOP. Describe each step, how long it takes and what tools they need to perform the job effectively.

Get input from the people responsible for doing the job before finalizing a process. They may have good ideas on how to improve a process and make it more efficient. Giving them the opportunity to share their ideas will make them feel more engaged in the job and they will be more supportive when adopting a new protocol.

When necessary, use an outside consultant to help develop or review your SOPs. They may bring new ideas to make processes more efficient and cost effective.

Test new SOPS before implementing the change. A good example would be modifying part of the milking routine. Try the routine with your best shift for a month and monitor parlor performance. Then, show the improved parameters to the rest of the employees and officially implement the new SOP with all shifts.

Spend time training employees when developing a new routine/SOP. This is a critical part of the success of any new procedure. Even the smallest change in an SOP requires some training.

Modify SOPs depending on the time of the year. Weather conditions may affect the way jobs need to be done. An example of this could be stall maintenance, or manure handling.

Post simple step-by-step SOPs where the information is needed for quick reference: put the milking routine SOP in the parlor; or washing and disinfecting instructions in the calf barn.

Remember, most profitable dairies focus on ways to improve process consistency by developing and periodically reviewing SOPs. Finally, SOPs will also ensure employee safety and good cow practices at all times.

To view examples of SOPs, visit www.apndairy.com/Services_Protocols.html.

FYI

ν 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.



Correcting unacceptable behavior or performance requires a different response

PEOPLE POWER

by ROBERT MILLIGAN

There is no greater challenge for most dairy managers than dealing with employees exhibiting inappropriate behavior – lateness/tardiness, unacceptable actions toward co-employees/animals, demotivating attitudes, and other behaviors contrary to business policy – or inadequate performance. Managers know these situations will only get worse if not addressed. However, they are often not addressed for a combination of reasons: a) not wanting to address the issue for fear of conflict; b) fear the situation will only get worse; and c) lack of skills/experience to address these issues. I can help with the latter, which  should reduce the risk of the first two.

I find the traditional view of feedback as positive or negative to be inadequate. When behavior is inappropriate or performance unacceptable, there are two very different causes – the situation or the person’s behavior. The two causes require very different feedback; thus the need for three types of feedback – positive, redirection or negative.

It is crucial to distinguish between redirection and negative feedback when performance or behavioral expectations are not met. The key to great feedback is providing feedback appropriate to the performance. Appropriate means the feedback must correctly communicate the supervisor’s assessment of the employee’s performance. It is difficult to provide the appropriate feedback when expectations are not met or when performance is “unsuccessful.” A critical choice between redirection and negative feedback is needed.

Redirection feedback is the correct choice when the reason for the “unsuccessful” performance is the context of the performance. Negative feedback is the correct choice when the “unsuccessful” performance cannot be explained by the situation; it can only be explained by the personal characteristics of the employee. He or she did not have sufficient motivation to complete the task, or did not concentrate sufficiently to complete the actions on time.

The challenge of any choice, in this case redirection or negative, is that the wrong choice can be made. In this case, the wrong choice of providing negative feedback when redirection is the right choice is both common and potentially disastrous. Think of a recent example when someone blamed you personally (provided negative feedback) when you felt the culprit was the situation or context (should have received redirection feedback). You were likely upset, frustrated or angry. This scenario evoke a strong reaction, because we believe we have been treated unfairly. Anytime feelings of unfairness appear, the relationship is damaged.

Redirection feedback

Providing effective redirection feedback is difficult. You are telling the person they did not fulfill the expectations, but they were not the cause of the failure. Something prevented them from meeting the expectation – lack of training/supervising, inadequate resources, something unexpected, or an unrealistic goal.

The challenge is to communicate that change is required without them becoming defensive or feeling treated unfairly. An effective approach is to ask questions, rather than tell them they need to change. Below is a short dialog with an employee who is completing new tasks too slowly. The supervisor believes they are making every effort to succeed, so redirection feedback is appropriate:

Supervisor: How do you think you are doing with the new tasks?

Employee: Fine.

Supervisor: Are you completing the tasks as quickly as you would like?

Employee: I think I’m doing fine, but I suppose I will speed up with practice.

Supervisor: What is keeping you from going faster?

Employee: I probably just need practice. Now that you are asking, there are a couple of tasks I really do not completely understand.

Supervisor: Let’s carefully review them …

Negative feedback

Most of us are more familiar with negative feedback. It too must be provided correctly. Keeping in mind that the purpose of all feedback, including negative, is employee success is not always easy. The key to providing effective negative feedback is to view yourself as providing the employee a choice. He or she can choose

1. To change their behavior and/or performance to meet expectations (or)

2. Incur the consequence that you have specified for the inappropriate behavior or unacceptable performance

Although still not easy, most managers find thinking of negative feedback as a choice is easy than thinking of providing a reprimand.

Providing quality feedback

To provide great feedback, first reject the traditional view of feedback as positive or negative to be inadequate. Second, recognize that when behavior is inappropriate or performance unacceptable, there are two very different causes – the situation or the person’s behavior. The two causes require very different feedback. Third, consider the choice between redirection and negative feedback very carefully.

FYI

Robert Milligan, senior consultant with Dairy Strategies LLC, can be reached via phone: 888-249-3244, ext. 255, e-mail: rmilligan@trsmith.com, or website: www.dairystrategies.com.


USDA survey provides a glimpse of organic milk and crop production

Organic dairies represented 3.5% of U.S. herds, 2.1% of cows and 1.5% of milk volume in 2008.

By Dave Natzke

In what’s believed to be the most comprehensive survey of its kind, USDA’s 2008 Organic Production Survey shows about 2,000 organic dairies produced 2.76 billion lbs. of milk with a gross value of $750 million.

The survey lists two categories of “organic” dairies: those “certified” by a state or private agency accredited by USDA’s National Organic Standards program; and those “exempt” from organic certification (<$5,000 in annual sales). According to the report, there were 2,065 “certified” and “exempt” organic dairy herds in 2008. The peak number of cows in those herds in 2008 was 219,031, falling to 201,960 head as of Dec. 31, 2008.

Of that total, 2,012 organic dairies reported selling milk during the year. They produced 2.757 billion lbs. of milk, with a gross value of $750.15 million. At that value, organic milk produced in 2008 carried an average value of $27.21/cwt. (27.57 million hundredweights divided by total value of $750.14 million).

Leading states

The organic picture isn’t completely clear, because the report withholds cow and production data from several states to avoid disclosing information about individual operations.

Among major dairy states, Wisconsin had 479 organic dairies selling milk in 2008, followed by New York, 316; Pennsylvania, 225; and Vermont, 179. As of Dec. 31, 2008, California herds contained the most organic cows, at 35,333 head, followed by Wisconsin, 25,916; Texas, 18,854; New York, 17,431; and Oregon, 16,290.

California topped the list for milk production, at 501.8 million lbs., followed by Wisconsin, 329.0 million lbs.; Texas, 284.2 million lbs.; and Oregon, 261.1 million lbs.

Based on production and income estimates for individual states, average annual prices for organic milk were: California – $26.60/cwt.; Wisconsin – $25.87/cwt.; Texas – $28.47/cwt.; New York – $28.46/cwt.; Vermont – $28.21/cwt.; and Oregon – $26.43/cwt.

About 1,623 herds sold 39,922 organic cattle during the year, with a total value of $33.47 million.

Forages

Organic dairy herds require organic feedstuffs. The USDA estimated 3,704 certified and exempt farms produced 1.11 million tons of organic dry hay on 415,500 acres in 2008. About 71% of those producers sold organic dry hay in 2008, valued at $107.8 million.

In addition, 1,023 farms produced 626,750 tons of organic haylage, other silage or greenchop on about 118,500 acres. More than half (560) of those farms sold forages in 2008, value at $18.6 million.

Finally, 664 farms produced 373,615 tons of organic corn silage on just under 25,000 acres. About 40% of those producers sold organic corn silage in 2008, valued at $8.6 million.

General information

The 2008 Organic Production Survey counted 14,540 U.S. farms and ranches either certified or exempt, covering 4.1 million acres of land, of which 1.6 million acres were harvested cropland and 1.8 million acres were pasture or rangeland.

Nearly 20% of all organic operations were in California, which also led the nation in organic sales, with $1.15 billion – or 36% of all U.S. sales. Nationwide, 2008 organic sales totaled $3.16 billion, including $1.94 billion in crops sales and $1.22 billion in sales of livestock, poultry and their products.

The report concludes the nation’s organic farms have higher average sales, but also higher average production expenses than U.S. farms overall. Production costs revealed in the survey do not differentiate between type of operation (livestock or crop).

Most U.S. organic producers sold their products locally, with 44% of sales taking place less than 100 miles from the farm. Nearly 83% of organic sales were to wholesale channels, including processors, millers and packers. Just over 10% of sales were direct to retail operations, including supermarkets. Only 7% of sales were direct to consumers, via farm stands, farmers’ markets, community supported ag and other arrangements.

Perspectives

DAIRY: USDA previously estimated total 2008 U.S. milk production was 190.0 billion lbs. There were 57,127 U.S. dairy herds licensed to sell milk, with an estimated 9.315 million cows. Using those estimates as a basis, certified and exempt organic herds represented about 3.5% of the nation’s total herds; cow numbers made up 2.1% of the U.S. herd, producing about 1.5% of the nation’s total milk volume in 2008. The U.S. average price paid to producers for organic milk was $27.21/cwt. in 2008. The U.S. all milk price paid to producers in 2008 was $18.29/cwt.

FORAGE: USDA estimated total 2008 U.S. all dry hay production on 60.15 million acres, with a total harvest of 146.27 million tons. Using those estimates as a basis, certified and exempt hay producers represented 0.7% of all hay acreage and hay tonnage in 2008. Total 2008 U.S. corn silage was estimated on 5.97 million acres, producing 111.6 million tons. Certified and exempt organic producers represented 0.4% of all corn silage acreage and 0.3% of all corn silage tonnage.

FYI

• To see the full report, USDA’s 2008 Organic Production Survey, visit www.agcensus.usda.gov/Publications/2007/Online_Highlights/Organics/ORGANICS.pdf.

Organic pasture rules clarified

USDA announced details of National Organic Program regulations to clarify the use of pasture in raising organic ruminants. The main components of the rule include:

• Animals must graze pasture during the grazing season, which must be at least 120 days per year.

• Animals must obtain a minimum of 30% dry matter intake from grazing pasture during the grazing season.

The final rule will be published June 17, 2010, and will become effective 120 days later. Operations already certified organic will have one year to implement the provisions. New operations must demonstrate full compliance to obtain organic certification.

For more information, visit  www.ams.usda.gov/NOP.


QMPS — Coagulase-negative staphylococci: More important than we thought

In low bulk tank somatic cell count herds, Coagulase-negative staphylococci, as a group, had a larger contribution of somatic cells than any of the other major mastitis pathogens and were important contributors to the total number of somatic cells in bulk milk.

by Linda L. Tikofsky, DVM and Jack van Almelo

Because mastitis caused by Coagulase-negative staphylococci (CNS) is usually characterized by just mild elevations of somatic cell counts (SCC) and less severe clinical mastitis, this group has usually been accepted as a minor pathogen in dairy herd health. However, with improved control of contagious mastitis pathogens such as Streptococcus agalactiae and Staphylococcus aureus, CNS have become the most common mastitis pathogens cultured from udder secretions.

Recent studies have found the number of subclinical mastitis cases caused by CNS to be between 16% and 50%. CNS are the predominant pathogen isolated from pre-calving heifers. Somatic cell counts from quarters infected with CNS usually remain below 500,000 cells/ml. However, increases in SCC over 100,000 cells/ml are associated with reduced milk production. Therefore, herds with a high number of quarters infected with CNS may see an impact in their bulk tank somatic cell counts. If a farm goal is to have an extremely low bulk milk SCC (<100,000 cells/ml) to capture the maximum premiums in their milk check, the increase in bulk milk SCC caused by many cows infected with CNS may have economic consequences.

To better understand the impact CNS may have on production and bulk milk SCC, 15 years of individual cow culture results (352,614) and data (milk production and SCC) from New York state were evaluated. The study found that overall, approximately 9% of all cows in the study were infected with CNS, and when individual herds were evaluated, an average of 15% of cows were infected with CNS. Cows with the lowest individual SCC were associated with no infection; moderate SCC level with CNS and Corynebacterium spp.; and high level SCC with S. agalactiae and S. aureus.

The percentage of the bulk milk somatic cell count (BMSCC) contributed by CNS in herds with  BMSCC <200,000 was ~18%; in herds with BMSCC between 200,000 and 400,000 CNS contributed ~12% and in herds with BMSCC greater than 400,000 cell/ml, the percent contribution by CNS was 8%. In low BMSCC herds, CNS, as a group, had a larger contribution of somatic cells than any of the other major mastitis pathogens and were important contributors to the total number of somatic cells in bulk milk.

As with all other types of mastitis, prevention is the key, but management strategies aimed specifically at CNS need additional investigation. Since CNS can be resident microflora on teats and udders, they have long been considered opportunistic pathogens; however, recent studies have shown that certain species are more adapted to the udder environment (S. chromogenes and S. hyicus). Strategies aimed at decreasing bacteria on teats (e.g. dipping) have been shown to reduce CNS populations, as have strategies aimed at improving environmental hygiene. The use of internal and external teat sealants also has been shown to have a preventive effect against new CNS and other intramammary infections in both heifers and cows.

Spontaneous elimination rate of CNS in lactating dairy cattle is high and so treatment may not be indicated for all cases though it should be recommended for quarters with moderate to severe clinical mastitis and/or persistent infection. Selection of antimicrobials should be based on susceptibility testing.

Understanding of CNS mastitis is still quite limited and more research into understanding intramammary infection dynamics, management and cost-effective treatment strategies is encouraged.

QM2 is the newsletter of Dairy One and Quality Milk Production Services.

How to reach us…

Dr. Linda Tikofsky is Senior Extension Veterinarian, Quality Milk Ithaca, Ithaca, N.Y. Contact her via e-mail: lg40@cornell.edu.

Jack Van Almelo is a member of the Dairy Management Resources Group, DairyOne, in Ithaca, N.Y. Contact him via e-mail: Jack.VanAlmelo@dairyone.com.

QMPS is a program within the Animal Health Diagnostic Center, a partnership between the New York State Department of Agriculture and Markets and the College of Veterinary Medicine at Cornell.

The QMPS staff of veterinarians, technicians and researchers works with New York dairies to improve milk quality by addressing high somatic cell counts, milking equipment and procedures, and milker training in English and Spanish. QMPS also conducts research and teaching programs.

Reach the four regional QMPS  laboratories at:

Central Lab, Ithaca.    877-MILKLAB (877-645-5522)

Eastern Lab, Cobleskill.  877-645-5524

Northern Lab, Canton.  877-645-5523

Western Lab, Geneseo.  877-645-5525

QMPS website:   http://qmps.vet.cornell.edu

Dairy One is an information technology cooperative, providing DHI records services and herd management software to dairies throughout the Northeast and Mid-Atlantic region. A comprehensive laboratory network provides milk quality testing as well as forage, soil, manure and water testing.

Contact Dairy One Cooperative Inc. at 730 Warren Rd., Ithaca, N.Y. 14850. Tel: 800-344-2697. Email: dmr@dairyone.com

Website: www.dairyone.com


SWOT analysis: Use ‘tried and true’ concept to guide planning

Dairy has been on a roller coaster the past few years, making business planning seem difficult.  A “tried and true” management concept – SWOT Analysis – can help.

By Gregg Hadley

Adversity like the dairy industry faced last year, while trying, offers managers the opportunity to reassess their current condition and future. SWOT Analysis is an important part of the business planning process.

“SWOT” stands for Strengths, Weaknesses, Opportunities and Threats:

Strengths and Weaknesses refer to issues under the direct control of the farm or agribusiness. Strength is something the business is good at; a Weakness is something the it is not good at. For example, the managers of a dairy may find they have excellent feed bunk management (Strength), but poor somatic cell counts (Weakness).

Opportunities and Threats refer to issues the business has no direct control over. A new milk plant opening in the area would be an example of an Opportunity for a dairy, because it may give the managers “opportunity” to exercise more negotiating power.

Threats are external influences that may adversely affect the dairy.  If a country which  normally imports U.S. dairy products is in a recession, it may not be able to buy as many dairy products.  This “threat” may hurt the farm if it results in a decreased milk price.

You do not need a sophisticated computer program to conduct a SWOT Analysis. You simply need good data (production, financial, animal health, crop production, human resource management and marketing,) paper and a pen or pencil.

Because some managers may be overly generous or too critical in assessing their dairy, it may be helpful to ask fellow managers, employees, advisors, consultants, veterinarians and agribusiness representatives to assist in conducting the SWOT Analysis.

To begin, write Strengths at the top of a page and list everything the business seems to be good at.

Next, write Weaknesses on the top of a page and list everything the business is not good at.

Then, do the same for the Opportunities and Threats. Do not be surprised if an issue is both an opportunity and strength.

For example, urban encroachment may threaten a farm. This may make spreading manure more complex. On the other hand, urbanization may also increase land values, which increases the farm owner’s equity on a market value balance sheet.

Once you have listed the Strengths, Weaknesses, Opportunities and Threats, it’s time to do something with this information. Use the analysis to develop prioritized goals and a plan to achieve those goals. The plan should:

• build on your dairy’s strengths

• improve on its weaknesses

• take advantage of opportunities

• minimize the threats

An application

As an example, assume a farm manager, Maria, has conducted a SWOT Analysis and found these results:

Strengths

3 Very low cost of production

3 Great herd health

Weaknesses

3 Lower milk production

3 Profits are positive, but too low to support the family

Opportunities

3 Milk price is expected to go up

Threats

3 Urban encroachment

Looking at the SWOT Analysis results, it is apparent to Maria that the farm needs to be more profitable for her family. There is the opportunity milk prices may go up, but, then again, they may not. She would rather not merely rely on that hope. Since the farm is profitable, she could consider expanding, but the urban encroachment might make expansion more difficult.

Maria notices the low cost of production and good herd health strengths, and the lower milk production weakness. She wonders if there is a way to increase revenues by increasing milk production without an offsetting increase in her cost of production or a dramatic increase in herd health problems.  Maria decides to call her nutritionist, veterinarian, herdsperson and farm advisor to determine the feasibility of this idea and, if feasible, to help her develop and implement a plan to increase milk production.

Take home message

When developing future business plans, a SWOT Analysis is a good tool to use to determine the current strengths and weaknesses of your farm and the external opportunities and threats that may affect the farm in the future.

FYI

Gregg Hadley is associate professor of Agricultural Economics and Extension Farm Management Specialist at the UW–River Falls, UW-Extension and the Center for Dairy Profitability. Contact him via phone: 715-425-3188; e-mail: gregg.hadley@uwrf.edu; or website: www.uwrf.edu/extension/GregH.php.


Conversations: Ask your nutritionist about corn silage quality

Feed costs can represent as much as 60-65% of the total cost of dairy production. As producers and their advisors meet in the conference room (or kitchen), the conversation will turn to evaluating the quality of ration ingredients, especially corn silage.

By Jerry Weigel

Representing a growing share of the typical dairy ration, high-quality corn silage is vital for today’s high-producing dairy herds. But what does “high quality” mean? Here are a few questions to help decipher the results of your silage tests.

1) What are you looking for when you evaluate corn silage quality?

I look at representative (at feeding time) silage samples for moisture, fiber digestion, feed intake potential, crude protein (which could be a real economic variable) and any mycotoxin concerns. I also take into serious consideration the nature of the sample, how representative it is (I cannot emphasize that enough), as well as the lab that did the analysis. Finally, I consider what method was used to determine the quality.

Ask your nutritionist about sampling methods and what steps you can take to ensure representative samples are taken. When you receive your test results, ask your nutritionist to explain your corn silage moisture, fiber digestibility and crude protein levels, and how they fit in your feeding program. Find out if mycotoxins are a concern in your area.


2) What are important factors related to starch analysis?

I have to set a limit (approximately 30%) on the amount of available starch in the total dry matter of the diet. After I have the chemical analysis back, determined the net energy for lactation (NE-L) of the corn silage and found that we have good NE-L without excessive starch, it allows some additional ration flexibility with corn grain inclusions or the use of co-products. Additionally, I need to know the degree of silage fermentation – has the silage fermented for two months or four months?

Ask your nutritionist to explain starch evaluation, especially NE-L. Given the test results of your corn silage sample, is there ration flexibility for inclusion of corn grain or co-products? How does silage fermentation factor into starch analysis?


3) What about fiber?

We have to understand and, maybe more importantly, expect how the rumen will react to a given fiber, based on the forage source. As we learn more about the various fiber fractions and how the rumen reacts to these fractions, we can better predict how the forage will perform in the cow and even evaluate any synergies of ingredients within the diets.

Ask your nutritionist about corn silage fiber test results and how these results translate into rumen dynamics. Ask how corn silage fiber will interact with other ingredients in the diet.

4) How can an accurate assessment of my corn silage feed components reduce my total feed costs?

The historical average incorporation of corn silage into lactation rations on a percentage of dry matter has been around 45%, but recent evidence suggests that we could approach 60% with the right corn silage, one with a high-energy contribution. This is especially true when we have expensive corn prices, and we can increase the inclusion levels of corn silage in our TMRs. For example, if corn grain goes from $3.00/bushel to $4.00/bushel and we price silage at 10x per bushel of corn grain, we could reduce the corn grain in the TMR by 2 lbs./cow/day. In this scenario, the potential feed savings could be in the area of 4¢ per cow per day, just by eliminating 1-2 lbs. of corn consumption.

After evaluating the corn silage test results, ask your nutritionist about current corn silage inclusion rates. Given prices/values for other feedstuffs, could the inclusion rate be adjusted higher to reduce purchased corn costs? Why or why not?

5) What’s the best way to evaluate/predict corn silage digestibility?

Ask the cow! On a serious note, the total understanding of forage digestibility is critical to the economic returns of the dairy. Historically, we have only looked at acid detergent fiber (ADF), but recent information has now led us to believe ADF is a poor predictor of silage digestibility. It is my opinion as a nutritionist that there are three predictors for digestibility (neutral detergent fiber digestible, or NDFD): 1) Animal tests where the test ingredient is fed; 2) In vitro studies where the test ingredient is ground to 1 mm and dry matter disappearance is determined; and 3) In situ digestibility evaluation where the test ingredient is measured (as fed) in rumen fluid and fiber disappearance is measured. If one cannot use the cow, it is my opinion in situ is the best method, as this procedure comes the closest to what the rumen observes.

Ask your nutritionist to explain how predicted forage digestibility is determined, and what implications that has for your herd. Ask how herd performance can be expected to compare to predicted digestibility.

FYI

Jerry Weigel   is the manager of nutrition and technical service for BASF Plant Science. Contact him via phone at 919-547-2554 or e-mail: gerald.weigel@basf.com, or visit www.nutridense.com.


Foot care can prevent a multitude of herd health issues

By Ron Goble

VISALIA, Calif. – Lameness in a dairy herd can easily be the unseen drain on a producer’s pocketbook.

Jan Shearer, formerly at University of Florida and now a professor with Iowa State University Extension where he conducts research and programs on lameness of dairy cattle, bovine behavior and animal welfare.

Shearer said he had one producer tell him he lost 4% of his herd to foot problems. The cost was enormous at $1,500 to $2,000 an animal. So the real cost of lameness skyrockets when a herdsman must accelerate culling.

Lameness costs dairymen dearly. Cornell University professor Chuck Guard estimates the average cost of a lameness case is $478. This includes lost milk production, treatment costs, extra days open, involuntary culling, death loss and extra labor costs.

Shearer was in California’s Central San Joaquin Valley in December to teach dairy employees the finer points of foot care for their cows.

It is part of a “Master Hoof Care Technician” program sponsored by two local veterinary practices – Mill Creek Veterinary Services (MCVS) in Visalia and Valley Veterinarian, Inc., in Tulare.

“The two vet services try to get Dr. Shearer out to California once a year, but it usually works out to be every 18 months, or so,” said Jennifer Wessel, a veterinarian with MCVS. “Not only is Dr. Shearer an expert in the field of lameness, but is also highly esteemed in the veterinary field with animal welfare.”

Not only does a dairy producer want to maintain high standards when it comes to animal welfare issues in his herd, but also to address the economic issue that lameness presents and get the animal back in the milking string at full health as soon as possible.

“If an animal is lame, it means she is not walking properly, therefore she’s not eating properly and not milking properly,” Wessel said. “When you have a lame cow it effects the overall herd health and pays for producers to detect the problem early.”

Wessel suggests that having someone on the dairy every day who is trained to deal with lameness issues saves producers thousands of dollars a year. “Treating animals on a daily basis is by far a more economical solution than contracting with a hoof trimmer who visits the dairy once a week or once a month,” Wessel said.

With a hoof care technician on the dairy, besides the cows that are observed to be having some lameness issues, all dry cows are given a preventative trim before being turned into the dry cow pens. “No questions asked…all get tipped and checked before going dry.”

Beginning with the basics

The hoof care instructions began at Mill Creek’s veterinary Shirk Road office with classroom lecture in the morning and a three-hour lab in the afternoon, which allowed the 13 participants to work on cadaver feet with knives, grinders and practice block preparation, among other techniques.

The next two days of the class were spent with actual hands-on hoof trimming for four hours in the morning and three in the afternoon.

He keeps the group on the dairy to four to  six participants. That gives each person time to get involved in a positive way.

“The great thing about having Dr. Shearer come out here is that he is fluent in Spanish and provides intense instruction for three days where he can not only teach them the proper methods, but watch them in action to see how they are progressing,” Wessel said. “The hands-on experience makes a big difference in the learning process.”

Some cows require more than just a trim of the hoof, she explained. Occasionally, a cow has a particular “toe” that is injured and the hoof care technician might put a block on the opposite toe to relieve the pressure and allow it a few days to heal.

“It’s like giving that part of the hoof a short vacation so it can heal properly, which lets the hoof recover more quickly,” said Wessel.

Wessel was on hand while Shearer was instructing a small group of hoof care technicians at Vanderham Dairy, north of Visalia. Shearer also conducted class sessions at dairies in Hanford and Tulare during his visit.

Shearer tells those who are learning the details of hoof care in his class to work with their veterinarian when it comes to using prescription drugs in some of their treatments.

One cow being treated required a pain-killing drug before the hoof could be worked on. The technician needs the approval of the dairyman to use some of those drugs, so they need to have the cooperation of their vet so they can have material on hand when it is needed. “Like using Lidocaine to numb part of the foot before working on the ailing toe,” Shearer said. “It’s a pretty innocuous drug, but does require a prescription and needs to be handled responsibly. Some veterinarians not involved in the Master Hoof Care Technician program may not be okay with that, but those that work with us see the value in giving their technicians all the tools they need to treat the cow.”

Shearer likes to visit California during the winter time because it is cool and the cows are not stressed like they would be in the hot summer. “I like to take my time when teaching. Things move a little slower during a class compared to someone just working cows as a routine part of their job.,” he said.

“These young men learn quickly and after three days of working together in the class can be very effective working on cows back on their home dairy.

“Some of these men have been taught hoof care by someone without any formal training. So we’re trying in some cases to help them lose old habits and redevelop new habits. That takes a little time,” Shearer declared.

“In the classroom we not only tell them how to do it, but why you do it. We teach them why in the classroom and reinforce it at the dairy over the following two days. When we leave here, they not only have a technique in their hands and in their minds, but also know that the reason why they are doing a particular procedure.”

One tough job

Shearer called hoof trimming “one of the hardest, most complicated, jobs on the dairy. They have to understand the nature of weight bearing within the feet…how to put the block on to give the cow proper support depending on where the lesion is in her claw.”

“Don’t tell me how to do it. Tell me why you want me to do it that way,” he said. “If they know why, they tend to do a better job.”

Shearer said he liked to see some of his former technician students after they’ve worked on cows for a year or two. “They come back and have really become extremely good at what they do,” he observed. “And sometimes I’ll see some minor procedural drift and I can redirect that and get them back on what really matters. Some have a tendency to get a little cosmetic with their trimming, which isn’t really very important. But that’s a natural procedural drift that I often see develop. Pretty doesn’t matter when you have more cows that need tending to. Is it functionally better? That’s what we need.”

Shearer has been coming to California for the last five years to hold technician training sessions with these veterinary services.

Shearer is a member of the American Association of Bovine Practitioners (AABP) where he is currently chair of the Animal Welfare Committee. He serves on the board of directors of the Professional Animal Auditors Association, an organization dedicated to the certification of animal welfare audits and auditors.

Hidden taxes of a volatile industry

Dairy Financial Times

by Danielle Emel

You may find yourself in financial ruin following 2009’s devastating year for the dairy industry. With the losses you will carry forward from 2009, you may assume it could be some time before you will need to worry about giving Uncle Sam another penny.

You could be mistaken. Lurking in the shadows of our complicated tax code are tax laws waiting for your circumstances to fall within their requirements.

Income from this year, in conjunction with losses from last year, could create a tax liability even if your losses from 2009 are greater than the taxable income you generate this year. I’ll explain how.

Self-employed individuals essentially pay three types of taxes.

These taxes include:

1. Income tax (including capital gains)

2. Self-employment tax (roughly 15% on the first $106,800 of income and nearly 3% on the remainder)

3. State tax (up to 10% in many states)

Not what you think

You may think you will avoid all of these taxes with your extensive losses from 2009, but think again. A net operating loss cannot be used against future self-employment income (number 2 above), and in some cases, state taxable income.

Let’s look at an example of what you could pay in taxes over a two year period despite significant losses in the first year:

Year 1 – Your taxable loss: $1,000,000.

Year 2 – Your taxable income: $750,000.

Net loss over 2-year period: $250,000

No tax would be due for the first year under this example. However, in the second year you have lost any benefit you would have received from self employment losses from the prior year. You stand to pay self-employment tax of about $35,000 for that second year.

More to consider

Almost all states impose their own income tax. Some states choose not to conform to all federal tax laws. For example, the state of California has suspended net operating loss deductions for large businesses, or those businesses with over $500,000 of net business income. In California, the operating loss from our example would not be allowed for state purposes, leaving $750,000 of taxable income subject to almost 10% of state tax.

In the example above you realize a $250,000 loss over a two year period could easily cost a dairy producer more than $100,000 in tax!

Possible new taxes

Unlike the federal government, states do not realize as many opportunities to borrow money. States look for other ways to finance their spending and potential new state taxes pose significant problems for taxpayers in the coming years. Oregon recently passed a gross receipts tax. This creates a tax liability for a business even if its gross revenues were the same as its expenses, and it is highly likely other states will follow suit.

Estate taxes

As I write this article, Congress has yet to react to the repeal of the estate tax, which went into effect for 2010. Don’t presume you can escape an estate tax liability by dying this year. Along with the repeal of the estate tax was the elimination of step-up in basis.  Step-up in basis is a key factor in determining the taxability of your estate to your heirs.

Previously, heirs inherited a new basis in assets they acquired from a decedent’s estate.  The basis was “stepped-up” to the fair market value at the date of the decedent’s death, thus eliminating potential income taxes should heirs decide to sell those assets soon after they are inherited.

Ultimate liability

Under the new law, the value of your assets will be passed on to your heirs at the LESSER of your cost (or basis) or fair market value at the date of death. Lower basis is likely to result in a gain on the sale of inherited assets, and ultimately an income tax liability.

Congress will likely reinstate the estate tax AND make it retroactive. It will cost something to have your estate plan revised, especially when the estate tax is set to return in 2011. But a more costly risk could be to sit back and do nothing. Having your estate plan reviewed to ensure it provides flexibility for these possible and future conditions could bring you piece of mind in this unstable environment.

In summary

Under current tax laws, a loss in one year combined with less income in the next, will not equate to zero taxable income, and tax laws continue to change. Prudent business and tax planning continues to be as essential now as when times are good.

FYI

Danielle Emel, CPA and partner in Modesto, Calif., with Genske, Mulder & Co., LLP, a certified public accounting firm representing clients who produce 12% of the nation’s milk in 29 states. Danielle can be reached at 209-523-3573 or e-mail her at danielle@genskemulderco.com


Conquer the LTC dilemma

It’s your money

by Verlyn de Wit

It’s more fun to sort wild-eyed heifers in knee-deep manure than to shop for Long Term Care (LTC) insurance.

People want LTC insurance because it provides:

• Personal dignity.  You’ll never have to burden family members with your care.

• Personal freedom. You’ll have a better chance of staying out of a nursing home with LTC insurance. Today’s plans can provide enough money for in-home care so that you aren’t forced to enter a care center.

• Protection of assets.  A 2008 survey by Genworth Financial discovered that the average daily nursing home room in California goes for $238 per day, or nearly $87,000 per year.

SmartMoney reports…

But who wants to pay for something they may never use? SmartMoney reports, “…the average nursing home stay is 2.4 years, [but] as many as 68% of those age 65 and older who are discharged from nursing homes…spend less than 90 days there.” Ironically, most LTC plans have a 90-day no-pay period before benefits begin.

So is it good news or bad news if the thousands of dollars you’ve spent for LTC insurance go down the drain unused? If this dilemma has you shaking your head, there may be a compromise solution that fits your style.

Meet ‘Martin’

A number of insurance companies now offer a life insurance policy that carries a LTC rider. Let me introduce you to my imaginary friend, Martin. Martin is 65 and in excellent health. By paying an annual premium of  less than $4,000, Martin can purchase a life insurance policy on his life that is projected to provide a $125,000 death benefit until he reaches age 100.

But there is something very special about Martin’s policy. If he requires qualified long-term care services (home health care, nursing home care, assisted living care or adult day care) an amount double his life insurance death benefit is available to him to meet those expenses.

Assumptions…

Assume Martin needs to enter a nursing home. Martin’s life insurance policy provides a $250,000 account which will reimburse Martin for his expenses.  The most paid out in any month will be $5,000 or 2% of the account. This $5,000 per month reimbursement would be exhausted in 50 months. The monthly reimbursement won’t cover all his costs if the average stay runs $238 per day as discussed above, but it certainly puts a big dent in it!

Benefit reduction

Any amounts paid to Martin for LTC reimbursement, whether at home or in a care center will reduce the eventual life insurance benefit dollar for dollar down to a minimum death benefit of $25,000.

Simply stated, Martin has purchased a life insurance policy for his heirs. However, if he suffers a serious setback that requires qualified Long Term Care, he will be reimbursed for up to double the death benefit during his lifetime.

Martin has found a solution to the LTC dilemma.  He, or his heirs will receive something back for the premiums Martin has paid. One drawback to this type of policy is that it generates very little cash value.  So if Martin later decides to forfeit his policy, all coverage will cease with little or no residual value. This must be viewed as a long-term insurance program.

Relatively new alternative

As you may have guessed, Martin and his situation are fictitious.  I’ve simply tried to alert you to a relatively new alternative in LTC coverage that many folks have found attractive. So the numbers presented here are representative.  You need to do more research to find out the facts for your particular situation.

I recommend that you consult a competent LTC insurance professional to see if this type of policy is right for you.  Your LTC insurance professional can check rates, guarantees and benefits with a number of plans and companies.

After all, if you’re sorting wild-eyed heifers in knee-deep manure, it’s great to have a hand!

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.


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