Archive for March, 2010

The Future: Dairy aisle reinvention could increase overall department sales by $1 billion

Improving ‘shopper experience’ can lead to greater dairy sales volume.

Tomorrow’s dairy department was on display at the National Grocers Association 2010 Annual Convention and Supermarket Synergy Showcase in Las Vegas, offering a glimpse at how a reimagined dairy aisle could increase department sales by as much as $1 billion. The Innovation Center for U.S. Dairy and Dairy Management Inc. (DMI) booth provided a virtual walk through the “Dairy Department of the Future” via a video presentation, showcasing results of a three-year dairy farmer-funded project that is helping reshape the future of the retail dairy aisle.

The Dairy Department of the Future research shows a reinvented dairy aisle can increase dollar sales by 1.6% and dairy unit sales by 2%-3%. The dairy department generates superior returns on its space compared with other departments, generating 19% of store profit from 3% of store space. By optimizing space and creating a more shopper-oriented – rather than operations-driven – department, retailers can maximize new product potential, improve cross-merchandising opportunities and drive significant growth in sales and profits.

“The dairy industry continually explores innovative ways to increase demand for nutrient-rich dairy products,” said Tom Gallagher, CEO of the Innovation Center for U.S. Dairy and DMI.

Starting in 2006, a coalition with The Dannon Company and Kraft Foods analyzed 343,000 shopping trips, audited 22,000 retail grocery stores, spoke with 2,500 consumers, and implemented category and total dairy aisle reinvention efforts in more than 1,000 stores nationwide. The testing and research showed shoppers spend more time in a reinvented dairy department, enjoy the shopping experience and purchase more items overall.

Dairy a strong draw

Dairy offers several strengths that could be optimized by redesigning the dairy aisle:

1) product innovation. Dairy dramatically outpaces other categories in offering product innovations, introducing new products at a compound average growth rate of 10.5% since 2004, compared to 6.2% for produce and 1.5% for food and beverages. The number of new products introduced in 2008 was 1.7 times more than 2004.

2) high-value products. One of the most profitable areas per unit of space in the store, dairy also has one of the fastest turnover rates. Expanded space gives more area for high-value dairy items, reduces the chance of stocking shortfalls that would hurt sales, cuts labor costs for restocking, and increases the rate of return on capital investment in inventory.

3) quick trips. Convenience is becoming more critical for shoppers, and supermarkets are losing out to more convenient outlets. Nearly one in two trips to the supermarket are considered “quick trips,” in which the shopper picks up 1-5 items at a total cost of less than $40. Forty percent of those trips include at least one dairy item; and about 20% include the purchase of fluid milk.

Shopper-focused design principles

The research outlines design principles and best practices to elevate the dairy department’s role within the store:

• Contemporize: Changing shopper perceptions from “old fashioned” to modern, relevant, fresh and new.

• Dimensionalize: Slowing down shoppers by creating a three-dimensional space with cross-merchandising vehicles that answer lifestyle and usage needs.

• Rationalize: Engaging shoppers by bringing clarity and organization to different segments.

• Invigorate: Inspiring shoppers by communicating the value, benefits and usage occasions of dairy products.

Shoppers described their experiences in the reinvented dairy department more favorably than before the enhancements. They liked how the new department was presented, believed the changes made shopping easier, and indicated the new look created a more welcoming experience.


Tom Gallagher is CEO of Dairy Management Inc. and the Innovation Center for U.S. Dairy. For more information, e-mail: or visit

Corn strategy #2: Buying put options against bought corn


by Matt Mattke

The second in a three-part series, this column covers buying put options against bought corn.

Corn feed buying agreements should be simple, flexible and give both parties greater control over the price paid or received. One simple feed contract for both the dairy producer and corn grower is a “pick your price” contract. The corn grower simply decides when he wants to lock in his sales price with the dairy producer. Depending on the time of year and the corn grower’s market savviness, that time could be an ideal buying opportunity for the dairy producer, or it could be the most inopportune time.

Last month, I discussed selling futures against bought corn. This month, I’ll address a second strategy: buying put options against bought corn. The great thing about this strategy is the dairy producer doesn’t have to determine whether it is an opportune time to buy or not.


Suppose the corn grower decides to sell 30,000 bushels of corn to the dairy producer at $4.50/bushel. The dairy producer does not know whether corn will go higher or lower from here, but she does know that $4.50/bushel is a very high price to pay for corn.

Historically, corn futures have traded anywhere from $2.00-$8.00/bushel, so there is a couple dollars of potential movement in either direction. By having the corn bought, her risk of higher prices is eliminated, but to protect against lower prices she immediately buys put options.

She buys six December $4.25 corn put options at 35¢/bushel each (each contract is 5,000 bushels). These December put options establish a floor price on the bought corn at $3.90/bushel.

The table below illustrates how these December $4.25 put options would impact her $4.50 purchase price under several different market scenarios.

The table shows that if the December corn futures price falls to $2.00/bushel, the gains from the put options help to lower her net purchase price to $2.60/bushel. If corn rallies and goes to $6.00 or $8.00, she pays a net price of $4.85/bushel. She has $4.50 locked in with the corn grower, and with a 35¢ loss on the put options, her net purchase price is $4.85/bushel; leaving her with a worst-case purchase price below $5.00/bushel.


There are several advantages of protecting bought corn feed with put options:

1) The dreaded task of trying to time the market is eliminated.

2) Put options are fixed risk positions, so the dairy producer knows her total cost of the position upfront.

3) It is a quick and simple strategy to implement and does not require daily management.

4) It gives the dairy producer the best of both worlds in the event of a big move in either direction. If corn goes to $8.00/bushel, the bought corn provides protection; if corn goes to $2.00/bushel, the bought put options provide protection.


1) If the market goes higher, put options add to the producer’s corn price.

2) The upfront cost to establish the put options can be sizeable if the producer is buying a lot of bushels.

3) Put options do not have an infinite life. Corn put options do have an expiration date; December corn puts expire at the end of November.

In the end, the advantages outweigh the disadvantages, and this strategy can greatly simplify and speed up the entire feed-buying process.

Next month, the last article in this three-part series will cover the strategy of buying cash corn and protecting that feed purchase with a fence position.

Table 1. Corn price direction scenarios and impact on the
price dairy producer pays for corn ($/bushel)

What if the corn

price goes to:                                $2.00           $4.00            $6.00            $8.00

Floor price established

by put options:                              $3.90           $3.90            $3.90            $3.90

Gain or loss

of put options:**                         $1.90           ($0.35)         ($0.35)         ($0.35)

Price locked in

with corn grower:                    $4.50               $4.50              $4.50            $4.50

Final price locked in

after put options gains

or losses ($4.50 minus

gain or plus the loss)**:       $2.60               $4.85               $4.85             $4.85

** Commissions and fees with placing the futures trades is not included in these examples, but must be factored into final gain and/or loss of sold futures positions


• Matt Mattke, Market360® adviser at Stewart-Peterson, can be reached via e-mail: mmattke@, phone: 800-334-9779 or visit

Keen eye, sharp nose: Use your senses to head off metritis losses

By Todd Birkle, D.V.M.

Metritis is a costly disease that can’t be completely prevented. However, through aggressive fresh cow monitoring, we can reduce its impact on farm profits.

Todd Birkle, D.V.M., a fresh cow and reproduction manager for Pfizer Animal Health, based in Huntington, Ind.

Metritis is a common reproductive disease facing post-fresh cows on all dairies. Typically seen during the first 10 days in milk, metritis is a uterine infection accompanied by inflammation involving multiple layers of the uterus. Symptoms may include the presence of a foul smelling, watery vaginal discharge. Fever also may or may not be noticed, with temperatures of 103˚F or higher. Other signs of disease may be less obvious. Herd incidence rates are between 10% and 30%.

Losses from metritis include a decline in fertility, loss of milk production, increased labor costs, and a greater risk of culling. A case of metritis is estimated to cost producers between $304 and $354 from losses in production and performance, according to research from Dr. Mike Overton, University of Georgia. Those costs are highly dependent on milk prices and replacement costs.

Risk factors

The disease is commonly associated with calving challenges. According to Dr. Carlos Risco, from the University of Florida, there are several risk factors:

• Retained placenta – Failure to expel the fetal membranes within 12 to 24 hours after calving creates a likelihood of developing metritis 6 times more than a normal birth.

• Dystocia – A difficult calving increases the likelihood of metritis by 2.1 times more than a normal calving.

• Stillbirth – A stillborn calf raises the likelihood that the dam will develop metritis by 1.5 times.

• Twin birth – Compared to a cow that gives birth to a single calf, a cow that produces twins is 3.4 times more likely to experience a retained placenta and 10.5 times more likely to have dystocia – creating an indirect link to metritis.

Avoid metritis

Even a case of metritis identified and treated early is going to be costly, so the true goal of any transition program is to minimize the chance an animal will develop metritis in the first place. This is accomplished by keeping focus on these key transition critical control points:

1) Avoid too much cow movement.

2) Reduce overcrowding.

3) Avoid mixing first lactation heifers with adult cows.

4) Never let them run out of quality feed.

Properly trained and monitored maternity personnel are a must for any farm to ensure they minimize the incidence of overly traumatic dystocias.

Detect and treat

Our approach with challenges such as metritis is to aggressively monitor fresh cows and look for warning signs of disease. The goal is to recognize and treat the disease early to minimize its performance impact. I recommend a protocol which relies on three separate screenings:

1) Check the udder in the parlor before being milked to see if it is full and tight or if the cow is showing signs of decreased milk production. Mark any suspect cows with a paint stick or chalk on the back of the lower leg for examination following milking.

2) Walk the front of the cows when they are in lock-ups after milking to visually examine their mood, appearance and appetite. Specifically, look for signs of dehydration, eye or nasal discharge, droopy ears, or “sad cows” that just don’t seem right. Throw feed on the suspect cows when noted for easy identification and examination once you enter the pen.

3) Palpate the cervix and vagina of all fresh cows for specific signs of metritis, including a uterine discharge with a strong odor on day 4 after calving and again on day 7. Pay close attention to cows showing symptoms of disease.

All cows marked in the parlor or identified as being “off” from the front should get a “mini-exam” once the technician enters the pen. A mini-exam would consist, at the minimum, of the following:

1) Temperature.

2) Check for displaced abomasum.

3) Rectally palpate to assess manure and uterine discharge.

Treatment recommendations

If a cow shows definitive signs of metritis, our recommendation is that she stays in the fresh pen and be treated 5 days with ceftiofur, plus supportive treatment if warranted. If she has a concurrent disease that requires the use of a pharmaceutical with milk withhold, such as mastitis, then she will need to be moved to the hospital pen. Milking females with uncomplicated metritis should not be exposed to hospital cows. For cows that show symptoms of dehydration, mastitis or other disease, supportive care and treatment decisions should be made with the input of the herd veterinarian.

It is important to follow the label recommendations for the treatment chosen. While cows are being treated, they should be checked daily for signs of improvement. Even if metritis clears up before five days of treatment is completed, it is recommended to finish the regiment. After treatment, all cows should be reexamined.

I tell producers to trust their nose on the odor and their general assessment of the animal. If there are still signs of disease, continue treatment for three more days.


Todd Birkle, D.V.M., a fresh cow and reproduction manager for Pfizer Animal Health, based in Huntington, Ind. E-mail:

Your dairy business needs a chief executive

People Power

by Robert Milligan

As the turbulence and chaos in the dairy industry and general economy make a slow – and likely painful – recovery, what lessons do we learn from the trauma?

The key answer is that every business, including dairy, must place a higher priority on leadership. I often refer to this as focusing more on “chief executive” roles.

The biggest challenge dairy farmers and owner/managers of other small businesses faced in the past several decades was the transition from being a worker to also being a manager. The greatest challenge today is to add the role of chief executive to manager and worker roles.

The following are three critical needs for every business. Each requires leadership – a chief executive.

1) Capitalize on opportunities and minimize threats.

Many of us were captivated by hockey at the Olympics, including the dramatic victory of Canada over the United States for the gold medal. Wayne Gretzky, one of the Canadians lighting the Olympic torch, is widely regarded as the greatest hockey player ever. When asked how he was so successful, Gretzky would reply that he passed the puck to where the teammate will be, not to where he was.

This analogy provides the essence of what a dairy business strategy must be going forward. Business leaders must gain the knowledge and insight to make strategic decisions based on the predictions and instincts about the dairy industry, the general economy and global conditions in the future. Only then can a business successfully capitalize on opportunities and minimize threats.

This focus – customers, industry trends, business trends, global changes – is why I believe the transition from manager to chief executive will be even more difficult than the transition from worker to manager.

2) Lead and develop a leadership team.

Increased expertise, along with the growing size and complexity of a dairy business, means leadership requires a team effort – a leadership team that includes owners, partners and managers. The transition from a single leader (sole proprietorship) to a leadership team can be incredibly valuable, but also very difficult.

Successful teams require synergy – the combined effort is greater than the sum of the individual efforts, or 1 + 1 > 2. For this to occur, the leadership team must have  clear direction and structures to enable the synergy to occur. Just as farm and other business processes require specification, implementation and improvement, so do leadership team processes.

I have developed several leadership team tools to assist in this transition, and can share them with you.

3) Hire, retain and develop an exceptional workforce.

Almost every manager acknowledges that everything in every business – from small to large – occurs because of people. Despite this acknowledgement, managers spend virtually all of their time developing and improving production systems and processes, and virtually no time proactively developing systems and processes to hire, retain and develop an exceptional workforce.

Two current factors create opportunity:

1) with the recession, incredibly capable workers are currently unemployed, underemployed and employed in jobs they do not enjoy; and

2) young workers, who have been the staple of the agricultural workforce, now belong to the Generation X and Millennial generations. Although many managers perceive these young people are unwilling to work, the reality is most are actually willing to work hard, but only in jobs they find rewarding.

The opportunity: Develop excellent hiring, performance management and continuing development systems and processes to attract and retain these workers.

The challenge: You face at least two difficult hurdles to become the leader your business desperately needs, and to meet the three needs described above:

1. Leadership. Chief executive functions must become a priority. Learning about the external environment, developing strategy and developing human resource processes is important. You must develop the discipline and structures to give the priority leadership requires. Developing the discipline to do this may require establishing times each day or week when – no matter what – you will work on chief executive roles.

2. Expertise. These roles are new to most of you. You may need to enlist the expertise of others. Remember that Fortune 500 executives have leadership coaches and economic advisors. We are available to discuss whether there are opportunities for us to synergistically and collaboratively work with you in these areas.


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

Replacements: Medicated milk replacer rule changes to begin

Beginning in April, U.S. Food and Drug Administration regulation changes will affect manufacturing and management practices – and economics – of the most popular antibiotic option for calf milk replacer, according to Coleen Jones, research associate, and Jud Heinrichs, professor of Dairy and Animal Science, Penn State University College of Agricultural Sciences.

The first change adjusts the ratio of neomycin sulfate (brand name Neomycin) to oxytetracycline (brand name Terramycin) allowed in making medicated feeds. This drug combination is often called Neo-Terra (NT) on product labels. The old ratio was 2 parts neomycin sulfate to 1 part oxytetracycline; the new ratio is 1 to 1. Manufacturers must stop producing medicated feeds containing NT 2:1 by April 2, and those feeds must be out of distribution by Oct. 2.

The second change affects the dose and length of time NT 1:1 can be fed.

• Feeding medicated milk replacer from birth to weaning will no longer be permitted. Medicated feeds containing NT 1:1 may be fed for 7-14 continuous days, at a rate of 10 mg/lb. of bodyweight, for treatment of bacterial enteritis caused by E. coli and bacterial pneumonia (shipping fever complex) caused by P. multocida.

For a calf weighing 100 lbs. and eating 1-1.25 lbs. of milk replacer powder each day, the treatment rate works out to a concentration of 1,600 to 2,000 grams of NT per ton of milk replacer.

The bottom line: When needed for treatment, the new higher rate should be effective. But, Terramycin is more expensive than Neomycin, so the cost of antibiotics will increase on an as-fed basis, and it will probably be cost prohibitive to feed to all calves on a regular basis. Also, NT is not effective in treating diarrhea caused by rota or corona virus or by coccidia, Jones and Heinrichs add.

The updated regulations still allow NT to be used for improving feed efficiency, fed in milk replacer or starter grain at 0.05-0.1 mg per pound of body weight in calves under 250 lbs. Assuming a 100-lb. calf eating 1-1.25 lbs. of milk replacer powder per day, this rate works out to 16 to 20 grams of NT per ton of milk replacer. However, research has shown little improvement in feed efficiency at less than 600 g/ton.

The bottom line: It does not look like feeding low levels of NT to improve feed efficiency will be cost-effective, Jones and Heinrichs said.

The new regulations may require producers to maintain separate milk replacer inventories. An “add pack” approach may allow producers to continue feeding a standard non-medicated milk replacer and mix in NT 1:1 for calves that need treatment.

Consult with your veterinarian and nutritionist to determine the most desirable management approach.


Provimi North America launches ‘Nurture’

Provimi North America’s new line of milk replacer products – under the brand name NurtureTM calf formula – includes six products (Pinnacle, PlusEZ, Basic EZ, Basic, Start and Value), each designed for a specific need. All are formulated with a proprietary neonatal nutritional technology, NeoTec4TM, a combination of essential fatty acids. Field tests show improved average daily gain, feed efficiency and frame growth, and reduced scours.

For more information, visit or

Arrest non-medicated energy supplement

Advance® Arrest® non-medicated energy supplement, from Milk Specialties Global Animal Nutrition, is now available with ProVance® Microbials. The new formula provides rapidly available energy, essential electrolytes and fluids, plus fast-acting microorganisms to help overcome upset and unbalanced digestive tracts and enhance an animal’s immune system. A specialized gelling action slows fluid passage, increases nutrient absorption and helps hold insoluble fiber in suspension, helping scouring and recovering calves. It is available in a 12-lb. bag (fully recyclable) and features a heavy-duty zipper for an airtight seal.

For more information, phone: 866-894-3660 or visit

Land O’Lakes Purina Feed now on Facebook

Land O’Lakes Purina Feed LLC launched Calf Wise™ on Facebook. The fan page allows dairy producers and calf growers to interact with company personnel, learn calf raising tips, get updates on nutrition and management research, and provide feedback on their experiences. Producers can share photos of calves raised on AMPLI-Calf® Technology and participate in weekly polls on calf nutrition topics.

For more information, visit and search “Calf Wise.”

Calf Mos Plus

Calf Mos Plus, a water suspendable prebiotic 2-way combination of glucomannans and essential oils, is distributed by specialty ingredient supplier The Old Mill Troy in North Troy, Vt. Calf Mos Plus shows benefits on gut health, immunity and performance and is used in milk replacers or whole milk fed to calves. It contains XTRACT Instant, a microencapsulated plant extract (containing essential oils from capsicum, oregano and cinnamon), suitable for use in milk replacers, and has been proven in automatic calf milk replacer systems.

For further information, e-mail: or phone: 800-945-4474.


Cow, replacement numbers

As of Jan. 1, 2010, there were 9.08 million cows in U.S. herds, about 252,000 less than Jan. 1, 2009 and 119,000 less than July 1, 2009, according to USDA’s semiannual cattle estimate.

Dairy replacement heifers (weighing >500 lbs.) were estimated at 4.52 million on Jan. 1, 2010, up 106,000 from a year ago and 16,000 more than July 1, 2009. Of the total, about 2.94 million are expected to calve in the next year, up about 32,000 from Jan. 1, 2009.

Based on these estimates, there were 49.7 replacements (>500 lbs.) for every 100 cows in U.S. herds on Jan. 1, 2010. That compares with 47.3 replacements per 100 cows as of Jan. 1, 2009. If the “expected to calve” estimate is correct, there were 32.3 replacement heifers for each 100 cows as of Jan. 1, 2010, up from 31.1 heifers per 100 cows a year earlier.


Time to reconsider acidified milk replacers?

With the recent changes in regulations regarding antibiotics in milk replacers, the acidification of milk or milk replacer may provide calf raisers with an effective and scientifically valid alternative.

To acidify milk or milk replacer, you will need pH test strips and propionic or formic acid (available from a veterinary product or chemical product supplier).

For more information, visit the Dairy Calf & Heifer Association website:

Prevent calf scours

Treatment of calf scours, the leading cause of dairy calf death in the first month of life, is difficult, labor intensive, costly and often unsuccessful. Kevin Hill, D.V.M., manager of Dairy Technical Services for Intervet/Schering-Plough Animal Health, stresses prevention through best management practices:

1) immunity. Manage the pregnant cow with an effective, broad-spectrum vaccination program to ensure high antibody levels are available in colostrum.

Feed a 90-lb. calf 1 gallon of colostrum as soon as possible after birth, and another gallon 12 hours later. Use a sanitized tube feeder if the calf will not drink that volume.

Monitor colostrum quality. Antibody content can vary. Delayed feeding or reduced colostrum consumption makes quality  even more critical. Fresh colostrum can be refrigerated for up to 24 hours, or frozen for use beyond 24 hours, without significant loss of antibodies.

Energy and protein drive the immune system. Many 20/20 milk replacers fed according to label directions will not meet the calf’s nutritional and immune requirements, especially during periods of stress.

BVD viruses can create immunosuppresion, opening the door to other infectious agents. Whole-herd vaccination against BVD and rapid removal of persistently infected calves are essential.

2) exposure. Viruses, bacteria and protozoa cause infectious diarrhea. Manage essential areas to minimize exposure.

Keep maternity areas clean; remove calves immediately from the cow and calving pen. Do not allow the calf to nurse; the cow’s teat surface likely is contaminated and can expose the calf to scours-causing pathogens. Johne’s-positive cows also put the calf at risk.

Place the calf in a dry, clean, individual hutch. Do not allow contact with feces, urine or nasal discharge from other calves, including the last calf to use the hutch.

Feed calves with clean, properly-stored colostrum in cleaned, disinfected and dried bottles and buckets.

For more information, e-mail: or phone: 801-540-2895.

Optimize heifer growth

Heifers that reach the milking string earlier pay back their cost of rearing and start contributing to profitability sooner. Ensure your ration is meeting your heifers’ needs, allowing them to reach breeding size sooner.

• Feed high-quality protein to support proper skeletal and muscle growth without overconditioning.

Feed high levels of neutral detergent fiber in older heifers’ diets. Fill is especially important to maximize capacity and rumen fermentation without overfeeding.

Formulate heifer diets utilizing low-cost byproducts and homegrown forages for optimized growth and rumen health.

Test forages and feeds, and supply  vitamins and minerals heifers need to stay healthy and growing properly.

For more information, visit

Prevent pinkeye

Norm Stewart, D.V.M., M.S., manager of Dairy Technical Services for Intervet/Schering-Plough Animal Health, offers a three-pronged approach to pinkeye prevention:

1) vaccinations three to six weeks prior to pinkeye season stimulate antibody production in tears that bathe the eye. Use a broad-spectrum vaccine effective against a wide variety of bacterial organisms such as Moraxella bovis strains and isolates.

2) fly control. Face flies transport bacteria from the eyes of one animal to another. Following label directions, customize fly control to your production system:

Treat animals of all ages and their premises with a long-lasting insecticide. For calves and cows, apply a low-volume pour-on for rapid knockdown of the existing fly population. For growing replacement heifers, apply two ear tags in addition to a low-volume pour-on insecticide.

On the animal’s premises, use a microencapsulated insecticide with long-lasting control on a wide variety of surfaces.

Use additional fly control measures as necessary, such as back-rubbers, oilers and other devices that can be used on pasture or in the milking parlor exit lanes.

3) environmental management.

• Eliminate organic debris such as wet/rotting hay, straw, feed, silage and manure.

Pasture mowing, dust control and man-made or natural shades are important to minimize eye irritants, such as pollen, seed heads, dust and ultraviolet light. Eye irritation and physical damage allow  infectious pinkeye organisms to attach to the surface of the eye. Irritants can also cause the eye to tear, which can attract flies.

For information, e-mail:; phone: 815-341-2280.

Delivering results: Harvest efficiencies from farm to plant

Increased milk storage capacity can reduce ‘stop charges’ for producers and costs for haulers.

Dairy’s ‘triple bottom line’ includes economic, environmental and social aspects. In the drive to reduce costs and the industry’s ‘carbon footprint,’ improved efficiencies in on-farm milk storage and delivery to the processing plant can address all three.

In the dairy industry, if one person or entity owned all the farms, trucks and plants, there would be a number of ways to save costs in moving milk from the farm to the processor. But because one person or entity doesn’t own all the farms, trucks and processing plants, milk pickup and delivery efficiencies and cost elimination must be achieved within each part of the system, leading to savings for each individual component – producers, haulers and processors – adding up to savings within the system as a whole.

Two charges

As in most hauling industries, milk hauling charges are often two-fold:

1) stop charge. Conceptually, the stop charge represents the fixed cost for pulling into a farm driveway. Every time a hauler pulls in the driveway, the farm is charged a fee.

2) transport fee. The transport fee, or “pump rate” as it’s called in the dairy industry, represents the cost to get the milk from the farm to the processing facility. Generally a standard rate per hundredweight for a hauler to transport raw milk, it will usually vary with distance between the farm and the plant.

Reducing producer costs

While a producer can’t cut the distance between his farm and the plant, he may be able to reduce stop charges.

Since the stop charge is based on the number of times a hauler stops to pick up milk, matching the farm’s milk storage capacity to tanker capacity maximizes the efficiency of each stop.

Many farms are picked up on a daily basis, even though they are not filling a trailer load of milk. Investing in more storage capacity could mean haulers could stop on an every-other-day basis, saving costs to the hauler and stop charges for the producer (see Example 1). Additional savings may be realized in reducing use of cleaning supplies, as well as heating and disposing of wash water.

Cooperatives and marketing organizations may provide “incentives” to get producers to increase storage capacity. One method is increasing the stop charge, a “disincentive” to stay at their current storage capacity.

Or, co-ops or marketing agencies may offer producers opportunities to participate in a “tank swap.” Haulers and field representatives who are on farms on a day-to-day basis can collaborate on the needs and opportunities within a region, working with producers to initiate a tank swap between farms to “right size” storage capacity to create efficient hauling schedules, improving efficiencies and reducing costs.

Investing in more storage capacity could mean haulers could stop on an every-other-day basis, saving costs to the hauler and stop charges for the producer. Additional savings may be realized in reducing use of cleaning supplies, as well as heating and disposing of wash water.

Efficiencies at the farm

At the farm level, there are a number of other factors affecting milk hauling efficiency:

• Timing. In most cases, producers determine when their milk can be picked up by their milking schedule. Haulers cannot pick up milk mid-milking. Additionally, farms milking 3X a day may not have storage capacity for all three milkings, so the hauler must plan accordingly.

As the pickup time window narrows, the cost to the hauler generally increases, because haulers may must alter schedules to meet the individual requests. This may mean bypassing the farm at a time when it would be most efficient for the hauler, coming back later in a route. Flexibility and sufficient on-farm storage capacity are crucial to making hauler routes the most cost effective as possible.

Providing tanker accessibility and matching on-farm storage capacity to tanker size can improve hauling efficiencies.

Farm accessibility. Not all farms can accommodate a tractor trailer, forcing a hauler to pick up milk with a straight truck, which is two-thirds the size. Smaller trucks mean more fuel, more drivers and more resources.

Investing in appropriately designed areas for tractor trailers will allow fewer trucks to pick up the same amount of milk in a shorter amount of time, eliminating costs in the system. Additionally, federal and state regulations, safety and time come into play when truck drivers cannot turn around in the farm driveway and must back onto the property.

Hauler efficiencies

On the hauler side, efficiencies are driven by equipment utilization. Equipment is a fixed cost. Ideally, the equipment would be used 24 hours a day, seven days a week and 365 days a year to use the least amount of equipment to pick up milk. Haulers, however, are limited to farm pick-up hours and accessibility, processing facility receiving hours, and driver availability to working the third shift.

With these limitations, there are other areas to save costs and drive efficiencies. Investments can be made in larger hoses. However, bigger hoses are heavier, making pickups harder on drivers. Farms also may not have adequate access points to accommodate a larger hose.

Technology has given haulers ways to drive costs down. One area is the development of tools to reduce fuel costs. There are now global positioning system (GPS) tracking and truck engine diagnostic systems available to monitor truck speed, braking habits and idle time, with the goal to increase miles traveled per gallon of fuel. Haulers can use monetary incentives to reduce driver speeds and minimize hard braking and idle time, saving fuel and fuel emissions, as well as maintenance costs.

Technology has also given the industry means to minimize the number of miles traveled through optimization programs for both farm load assembly and processing plant destination selection. These programs are designed to come up with the best assembly decisions and routes based on a number of parameters, including plant receiving schedules, farm pick-up times, types of milk, weight restrictions on roads and highways, differential zones, etc. Analysis has shown these programs can save up to 5¢/cwt.

Handheld units allow producer information and load weights to be transferred immediately to marketing organizations and processing plants. This instantaneous information decreases time spent keying data on an administrative level, and increases accuracy.

Another technological advancement does away with manual, paper-based hauler tickets. Handheld units allow producer information and load weights to be transferred immediately to marketing organizations and processing plants. This instantaneous information decreases time spent keying data on an administrative level, and increases accuracy. Plants can receive advance ship notices to anticipate hauler arrival time, load weights, and producer certifications for things such as recombinant bovine somatotropin-free (rbST-free) verification. All this decreases hauler wait times.

Plant efficiencies

A final area to drive milk transportation system efficiencies is at the plant. As a general rule, it should take a processing facility two hours or less to unload a trailer load of milk. Upon arriving at a plant, a truck has to be weighed in, sampled and approved, unloaded, cleaned and weighed out. In the case of rbST-free milk, certifications must be checked and approved. The more things that can be done at the same time, the more time effective the plant will be at unloading. Some dairy processing plants in countries, such as New Zealand, automatically draw milk samples and run antibiotic snap tests as milk is being unloaded into silos. In other ag industries, such as corn delivered to an ethanol plant, corn is sampled as a truck is being weighed in. If the truck’s contents do not meet specific standards, it does not make it to the receiving area.

Receiving room efficiency at the plant plays a huge role in meeting or exceeding the two-hour unloading benchmark. More receiving bays increase truck capacity. Receiving bay design is also very important. Drive-through bays vs. back-in/back-out bays play a role in the time haulers spend at plants.

Another factor in processing plant efficiency is silo capacity. Although a plant may have a specified throughput per day, this does not always mean they have the capacity to hold that milk to be processed. Sufficient silo capacity means less time haulers spend waiting in the plant’s parking lot to be unloaded.

Plant locations can also add costs, due to the distance from milk supplies, as well as Department of Transportation rules governing driver working hours (14 hours per trip with 11 hours of actual driving time). Other issues at milk processing facilities include first-come, first-serve testing, bumping trucks out of appointment times, and plant receiving hours.


Driving cost efficiencies in milk transportation makes sense, especially as the dairy industry strives to reduce energy use and its “carbon footprint.” Between picking up milk at the farm and delivering it to the plant, there are number of areas that can be capitalized on to reduce costs, save time and energy and decrease the impact on the environment. If collaboration occurs, each unit of the system – and the system as a whole – will reap the benefits.


• Contact your cooperative or marketing agency to see if ‘tank swap’ opportunities are available.

• Visit the Innovation Center for U.S. Dairy website,

Help your ‘replacement makers’ make the transition

A facility built for handling dry cows efficiently also keeps them healthy.

By Susan Harlow

It’s the health of his cows that tells Neil Rejman how his transition-cow program is working, a program that depends on excellent housing and attention to feeding.

Rejman, his father, Jack, and brother Greg milk 3,300 cows on Sunnyside Farms, their Scipio Center, N.Y., dairy. While Greg oversees cropping, Neil is in charge of the cows. Last year’s herd average was 28,000 lbs. of milk per cow.

Steady expansion allowed Neil Rejman to add new and better transition cow facilities to his dairy operation.

Expanding from 1,800 cows since 2000, the Rejmans have added and upgraded  transition cow housing. They’ve built – and improved – three new dry-cow barns over the last 10 years. The current transition facility includes two three-row barns, connected by an alley.

“We’ve tried to throw a lot of resources into the facility to make it easy to clean and feed,” Neil Rejman said.

With plenty of space for prefresh cows, Rejman can group them with an eye toward labor efficiency. Drying cows off and moving them into prefresh housing used to be a “management nightmare,” he said. “This way, we don’t have to rely on the computer list, because the whole pen gets moved; 95% of the work is easy.”

Rejman dries off a pen of 60 cows each Tuesday, using Orbebin DC as dry-off treatment, and moving them into a large pen in the transition barn. Originally, he planned to  keep each pen of cows the same as it moved into close-up pens for more labor efficiency and maintain consistent cows social structure. But because the days carried-to-calf differ for each cow, it was impossible to maintain consistent pen numbers without adding an extra pen.

After trying a 45-day dry period, Rejman’s goal is now 60 days. “With that 40 to 45 days, it looked like what we gained with early dry-off, we lost in (milk production) in the next lactation,” he said.

At about 28 days before calving, cows are moved into one of two prefresh  pens. Just before birthing, a cow is moved to a bedded pack with six pens, giving each cow 250-750 square feet.

“We invest to get good quality forages and grains, and only use supplements that are extremely proven and have consistent responses,” Rejman said. “We don’t watch total ration cost – we analyze each ingredient and determine the value independently. The total cost is what it is.”

The feeding system is on FeedWatch. “The feeders love it and you can actually track what’s going on,” Rejman said. “FeedWatch can show you pen count history, so can see if the guys are doing a good job not overcrowding particular pens.”

Rejman’s nutritionist, Dan Button, focuses on managing energy balance in both far-off and close-up dry cows.

“The key is collecting accurate dry matter intakes (DMI),” Button said. The variable number of cows in each pen, difficulty in precisely calculating refusals and constant variations in intakes make it a huge challenge. But at Sunnyside, it helps that experienced feeders do an excellent job of feeding.

Button typically balances dry-cow diets with between 0.5 and 2 Mcals per lb. more energy density than daily requirements (based on Cornell Nutrient Management Planning System – CNMPS), making adjustments frequently as DMIs change.

Close-up cows are fed a controlled-energy diet with 5-7 lbs. of wheat straw. Heifers are fed a diet slightly higher in energy density, because their intakes are typically lower and some metabolic diseases, such as displaced abomasums, are rarely a problem.

Because there’s extra feed truck capacity in a load of heifer ration, some of the close-up cows have been fed the extra heifer ration, at a rate of 30-32 lbs., compared to close-up cows getting 28 lbs. of the cow ration.

Rejman and Button see no difference in milk production or incidence of metabolic diseases, such as ketosis or displaced abomasums, between cows on the cow ration and those on the heifer ration.

“What does that say? I’m not sure,” Rejman said. “The variation in energy has raised a lot of questions. Maybe it’s the energy balance of the far-off dry cows that’s important.”

Rejman suspects body condition may play a part in how prefresh cows use their ration, but research has yet to determine the role, because few studies include thin cows. One of the difficulties in feeding a controlled-energy ration to dry cows is that some cows may be underconditioned.

So how do you feed those cows adequately without overfeeding the rest of the group? Cornell dairy researchers plan a study at Sunnyside that will compare high- and low-energy diets for prefresh cows and heifers.

Employees walk through the prefresh pens with a status checklist two times a day. The goal is to move a cow into the maternity area when she shows signs of calving. DairyComp records identify the employee minding the prefresh and calving pens, so Rejman can monitor employees, too. “It’s rare that a calf lands in the alley,” he said.

All freestalls are deep-bedded with manure solids from Sunnyside’s one-year-old digester.   The six maternity pens are bedded with shredded newspaper, changed bi-weekly, along with a new layer of sand for traction.

“We use minimal additives, but one thing we always do – every fresh cow gets a bottle of calcium subcutaneously. It’s cheap and, even if she doesn’t need it, it’s beneficial for some cows that are subclinical milk fever,”  Rejman said. Giving calcium is also an opportunity to check the fresh cow for general health and well-being.

After that, cows are moved into a fresh-cow pen, with a low stocking rate between 60% and 90%, for 14 days. Rejman’s philosophy is to leave his fresh cows alone. “Our goal is to try to minimize the ‘futzing’ time with the cow,” he said. “We concentrate on the 10% that need it, rather than all of them.”

The fresh-cow diet is similar to the lactating cow diet, but with 3 lbs. of dry grass hay, raising the physically effective fiber and helping prevent DAs.

“We have been through that on and off and (the hay) has been phenomenal in helping,” he said. “We’re very, very happy with that.”

Monitoring milk weights helps pick out fresh cows needing extra attention, although they are cross-checked with a days-in-milk list to determine which are true deviations.

Cow health, not milk production, show the success of his transition cow program, Rejman said. “Our hope with the second heifer diet was to drive milk production. But we haven’t had any luck with increasing 30-day milk. So we try to minimize fresh-cow disease. We haven’t been able to figure it out with energy density of the diets, only through reduction in fresh cow disorders.”

The dairy has decreased the DA rate in the last year to about 1%, and has just 7% retained placentas and 5% stillbirths.  It sees very little clinical ketosis, and milk fevers are rare.

“We try to build facilities that are best for the comfort of the cow, are easy for people to do good, consistent work, and manage the individual cow,” Rejman said. “It is easier for employees to do a better job with efficient facilities. It is hard to do one without the other.”

Is the dry cow ration that important?

Dairy producers have a lot more leeway in feeding prefresh cows than they think, said Ric Grummer, chair of the Department of Dairy Science at University of Wisconsin-Madison. “There’s been a lot of attention to feeding the transition cow, but the reality is that the research, after about 20 years, shows that there’s a large amount of flexibility that producers have in feeding those cows.”

Dairy researchers would serve the industry better by focusing on nutrition for newly fresh cows, where few studies have been done, Grummer said.

In a presentation to the Midwest American Society of Animal Science/America Dairy Science Association meeting, held in Des Moines, Iowa, in March, Grummer reviewed a wide range of studies on cows three-weeks prefresh.

The research covered such treatments as forage-to-concentrate ratio in diets, substitution of nonforage fiber sources, and different energy levels. He found that increasing concentrate levels precalving boosted dry matter intake (DMI), but the effect did not carry over to after calving. Declining DMIs of prefresh cows are not likely to throw them into negative energy balance before calving.

“Not much of anything made a difference,” Grummer said. “So we have quite a bit of flexibility in the three weeks before calving – we don’t have to steam up cows and get grain in their diets to acclimate them to fresh-cow diets.” That gives producers more choices in grouping: a one-group dry-cow pen – or separating heifers for social reasons – is workable. The single ration also makes it easier to implement a shorter dry period, especially for more mature cows, with the ability to vary which cows go into the dry pen.

That said, feeding cows a controlled-energy, high-fiber diet throughout the entire dry period makes sense. “Even in the last few months before calving, her energy requirements are quite minimal compared to a lactating cow’s. It’s also a less-expensive ration,” Grummer said.

Grummer found that:

1) Energy status is most compromised during the first three weeks of lactation – the most important time to feed a transition cow correctly.

2) Cows can return to positive energy balance quickly if fed adequate diets.

3) Energy intake probably has more impact on energy balance than milk yield.

4) “Successful feeding” is more likely to minimize negative energy balance than decreasing milk yield.

But what is “successful feeding”? Grummer said there’s a real lack of research on feeding the cow in the three-week period postfresh, partly because cows are so variable and hard to study during this stage.

More research must focus on this postpartum stage, when the cow goes into negative energy balance, peaking at about 10 to 20 days after she calves, he said.


E-mail Neil Rejman at

Contact Ric Grummer via phone: 608-263-3492 or e-mail:

Pasteurize waste milk: Keep young calves healthy

by Dr. Ellen R. Jordan

Texas A&M Extension

COLLEGE STATION, Texas – The use of waste milk to feed calves is a common practice on many dairy farms, but it comes with risk. Along with the milk, calves may ingest pathogens that cause disease (mycoplasma, salmonella and Johne’s Disease, etc.).

To minimize the risk, pasteurize the waste milk. Mycobacterium paratuberculosis, the pathogen caused Johne’s Disease, is not easily destroyed. However, researchers at the National Animal Disease Center in Ames, Iowa and at other locations have shown that pasteurization can destroy it and other pathogens provided the milk is heated to the correct temperature and held for a specified time.

There are two general types of on-farm pasteurizers available. The first type is frequently referred to as a batch pasteurizer. Milk is put into this pasteurizer, heated to 150° F (65.5° C) and held for 30 minutes.

The second type is a commercial high-temperature, short-time pasteurizer or a HTST pasteurizer. When using a HTST pasteurizer, heat milk to 161° F (71.7° C) and hold for 15 seconds.

Since both types of pasteurizers have been shown to effectively destroy pathogens, either can be used. The critical point is to use the correct temperature and time for the type of pasteurizer chosen.

Because some of these same pathogens can be transferred in colostrum, there is interest in what happens to immunoglobulins if colostrum is pasteurized. In a recent study using the HTST pasteurizer, there was a 25% reduction in immunoglobulins, thus consider alternative methods to protect calves from disease found in colostrum.

If you pasteurize colostrum, use the batch pasteurizer as the HTST tends to clog with colostrum.

For example, to control Johne’s Disease use only colostrum from cows that have recently been tested negative for Johne’s.

Commercial colostrum supplements or replacements can also be fed if insufficient colostrum is available.

Waste milk can be used for feeding calves, however pasteurize it first to reduce the risk associated with this cost-saving practice.


To contact Dr. Ellen R. Jordan at Texas A&M Extensiion, call 972-952-9212 or e-mail her at

Weighing your options

Success Strategies

by John Ellsworth

At the most recent World Ag Expo, I had the opportunity to moderate a panel of agricultural lenders in a discussion of the availability of financing. One of the recurring themes that seemed to surface was the issue of whether or not a producer should be using milk options, also known as puts and calls, in the management of their dairy business. I’ll cover their relatively unanimous response in a moment.

Put, call wisdom

Coincidentally, this past week I was asked to describe a scenario when I felt it would be smart to make use of a call option. When would it be wise to make use of a put option? In a moment, I’ll share my response to those two questions as well.

However, I feel it is important to consider what all “options” are about. Who, in fact, needs them? The key to successfully using milk options revolves around a task known as “margin management.” You may know this as “risk management.” Several of our lenders on the panel emphasized how important they felt that was for any borrower. Their explanation covered some of the aspects of how you can use options to almost ensure that your margin (revenue less expenses) is more positive.

Burn rates important

Our lenders also talked about a term called your “burn rate.” This is the rate at which you will eliminate your entire Net Worth if you continue to lose money each month. For example, if you milk 1,000 cows that produce 70 pounds per cow per day, you will produce about 21,000 hundredweights in a thirty day month (1,000 X 70 X 30 / 100). If you have a net worth of $1,000,000 and are losing $2.00 per cwt, your burn rate is about 24 months ($1,000,000 / $42,000). In other words, you could potentially operate for about two years at that rate of loss until you run out of “lendable equity.” Your lender would much prefer that you consider making reductions in your costs or somehow place a “floor” under your milk price.

Aha! That, my friends, is what you can accomplish by using a “put option.” The put places a floor under the price you receive. Puts are all priced using Class 3 federal prices, which can create some issues in California due to the difference in basis. The California pricing system is somewhat correlated with the federal pricing system. However, it does not match it. By purchasing put options through a broker affiliated with the Chicago Mercantile Exchange (CME), you essentially put a floor under your milk receipts/cwt on the portion of your milk you cover. If you buy a put option for $15/cwt milk for June 2010 and federal order milk prices in June land at $14/cwt, you will still receive the $14/cwt from your cooperative. However, you will also receive the difference in a separate check from the CME ($1/cwt e.g.). If, on the other hand, the market price comes in higher than your put option is set, it expires unused, and you are only out the cost of the premium you paid for your put.

This is an extremely simplified example of how put options work. You can only purchase these through licensed, qualified brokers, for good reason, but there are many great firms out there for you to access. Why would you use puts? Let me give you four reasons: 1) Your loan renewal is coming up, and your banker is worried about your projected returns/cwt. 2) Your “burn rate” is looking rather small, particularly after last year. 3) You are a young producer just getting started. 4) You are highly leveraged, either as a result of losses incurred or due to an expansion you’ve undertaken recently.

How about the use of “call options” in your dairy business? These allow you to “buy” milk at the CME (not literally) at a pre-set price. Primarily, I see these used when a milk buyer offers a “fixed price contract” for your milk. Say, for example, you agreed to a $15/cwt price with your milk buyer for the next 12 months. If during that same time period the federal Class 3 milk price climbed to $18/cwt, you would still only get $15 from the buyer of your milk. What to do? If you simultaneously have call options in place for some level such as $15, they will allow you to buy milk at $15 when it is worth $18/cwt, allowing you to collect the difference from the CME.

Critical to your future

This article only skims the surface of what you need to know before using milk options. Yet, I think it is important to consider how they might benefit you by smoothing out the highs and lows of the dairy industry. Be assured, the easy days of managing dairy prices are over. It will be critical to your future success that you master the art of margin management, which requires knowing your true cost of production, particularly on feed, with which you can also use options. If you have a better system, I hope you succeed greatly. However, for most producers, options offer the best insurance against devastating losses. Talk to some brokers and producers who have actually used them and develop a plan. I think you’ll be glad you did!


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:

Getting real on greenhouse gases

Milk matters

by Joseph O’Donnell

Converting grass into the most nutritious product on earth is a feat of nature that has kept our population well nourished for centuries. Dairy producers appreciate this and know how important their product is to the health of their family, community and country. A poorly nourished society easily loses its productivity and will suffer in many ways, not just economically.

Bringing nutrition to the world

In order for the dairy industry to maintain its ability to bring nutrition to the world it needs to constantly evaluate itself.  Like any business, dairy needs to identify all true costs of doing business and then work to minimize those costs to achieve greater efficiency – this includes costs to the environment. Environmental costs confront all industries and individuals. You can’t leave your house without having some effect on the world. That said, when evaluating costs we have to be working with real numbers to have a real effect.

Outrageous inaccuracy

Methane from cows is a common topic in the media. Some of the figures used are absolutely outrageous in their inaccuracy. And people take it at face value.

Take a closer look. All of the dairy methane originated with cow’s feed. That includes hay grown in areas that can produce little else in the way of crops, including food crops. Corn is another part of dairy feed but, unlike humans, instead of eating just the ear and leaving the stalks and husks behind to rot and produce greenhouse gases that are not utilized; the cow eats the entire plant and harnesses a good part of that energy to produce one of the most nutrient dense food packages available.

Byproducts produced

Consider all of the byproducts produced by the vegetable, nut and fruit industries – they find their way into dairy feed where more energy is extracted. And, the methane produced by these dairy cows can be converted to energy. But that’s another story. Even without a system for converting methane into energy, the cow has reduced the greenhouse gas impact of producing all of that human food necessary for our survival while producing one of the essential food groups. Talk about efficient!

When the number crunchers start adding up the greenhouse gases produced by dairy cows they need to add another column to deduct the greenhouse gases that weren’t produced by rotting byproducts. Why do we never see that calculation?  (Of course, the beef folks or any ruminant industry could make a similar argument. And they should.) People tend to look only at what gases are produced by an industry like dairy without looking at what gas production was avoided by putting that energy into milk or meat or in some places – even draught.

Dairy farmers can stand proud of their role in balancing the ecology of the world.  Without ruminants, all life would change including the environmental life of the planet.  In ruminants, we have a system that brings mammalian life together with the bacterial and plant worlds in ways that conserve energy by extracting it from material otherwise destined for greenhouse gas production. Greenhouse gases are kept in check and energy is recycled from nutritionally useless grass and other plants into highly nutritious food for humans (and many other animals on the food chain). Proper management of this natural conversion of non-edible plants and green waste to human food not only balances the environment but advances the nutritional status of all people. And we keep getting better at it. Dairy today is more efficient and sustainable than 60 years ago while feeding more people.

New ways to reduce GHGs

Dairymen are environmentalists – naturally; and they keep getting better. Research continues to find ways to capture and reduce the greenhouse gases produced by cows. There will always be those who are motivated by the almighty buck who try to pick out steps in the system and take things out of context in order to deceive people or create controversy.

Don’t fall for it. Dairy producers feed the world; dairy producers balance the environment; dairy producers make their communities and their country strong by intelligently managing the natural systems entrusted to them.  Awesome responsibility; awesome people.


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