During a visit to southwestern Wisconsin, May 13, U.S. Trade Representative Ron Kirk learned more about Wisconsin’s dairy industry and discussed how trade is impacting America’s entire dairy sector. The National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC) participated in the discussion with Ambassador Kirk, and Foremost Farms and Swiss Valley, farmer-owned cooperatives that are members of both NMPF and USDEC, hosted the events.

America’s dairy producers and processors have been working together for the past several years to expand market opportunities abroad, leading to peak sales of $3.8 billion in 2008 and exports totaling $2.3 billion last year, despite the global financial crisis and dwindling dairy prices.

The day began with a tour of Foremost Farms’ Richland Center cheese plant, which is involved in export markets through sales of whey produced at that facility. “Foremost Farms has been exporting whey ingredient products for many years and we continue to look for opportunities to expand our international market share. Richland Center plays a large role as up to 50 percent of the whey produced here is destined for export. We are in favor of mutually beneficial trade agreements that are critical to our growth and are pleased to have a dialogue with Ambassador Kirk about trade opportunities,” said Doug Wilke, vice president of marketing and technology, Foremost Farms.

Ambassador Kirk also visited Valley View Dairy, a member of the Swiss Valley Farms Cooperative. Farm owner Ray Schmitz said he appreciated the efforts of Trade Ambassador Kirk, Swiss Valley Farms and USDEC in helping grow opportunities to create more demand for U.S. dairy products worldwide. “Accessing global markets helps provide a stable price for the U.S. dairy producer. It is a source of pride that my Wisconsin dairy farm participates in these global markets when my co-op exports cheese to Mexico and Japan,” said Schmitz.

In Richland Center, Wisconsin Ambassador Kirk said, “I am pleased that we were able to have in-depth and frank discussions here with dairy industry folks about their trade priorities and concerns. There is no substitute for this kind of focused consultation.”

The discussion centered around issues of critical concern to the U.S. dairy industry such as maintaining the flow of exports to important existing markets such as China and the European Union, as well as creating new opportunities for U.S. dairy companies through beneficial agreements like the U.S.-South Korea Free Trade Agreement. Producers attending the event also resoundingly reiterated their deep opposition to inclusion of U.S.-New Zealand dairy trade within the Trans-Pacific Partnership FTA.

Wisconsin Farm Bureau Federation President Bill Bruins said he was pleased by USTR’s strong interest in the health and future growth of America’s dairy industry, and added, “There is a growing demand for dairy products in foreign markets from Brazil to Beijing. I believe this is a golden opportunity for the USTR to help us meet global demand with U.S. dairy products.”

“The past few years of growth in exports, followed by last year’s painful financial collapse when a significant portion of the overseas market was lost, have underscored the importance of U.S. exports and the need to strengthen inroads that America’s dairy producers and processors have already made in many markets around the world,” said Shawna Morris, vice president of trade policy for NMPF and USDEC.

On May 12, U.S. Rep. Jim Costa (D-Calif.) introduced the Dairy Price Stabilization Act, a bill he said would promote market stability and individual dairy farmers’ ability to grow their own business.

“While periods of boom and bust are not new to the dairy industry, our dairy families cannot afford another year of low milk checks that don’t even cover the cost of production,” said Costa. “The dairy price crisis is devastating our local economy and ability to create and sustain jobs. This bill will help the dairy industry get back on track and curb the milk price volatility that is driving dairy farmers in the Valley and our nation out of business”

In 2009, dairy farms throughout the country experienced one of the worst price crises of the last 40 years. Last June, prices dropped to an average of over $6.00/cwt., dramatically below the cost of production. An inconsistent national support system and the absence of a national supply management plan has exacerbated the price instability and created an unsustainable business cycle for many dairy families. In 2009, America’s roughly 65,000 dairies lost over $12 billion. Sharp losses forced dairy farmers to lay off workers and, in many cases, shutter their operations.

“We have a real opportunity to make meaningful changes to prevent future dairy crashes like the one we’re in now,” added Costa. “Protecting the livelihoods of our dairy families is critical to promoting a full economic recovery and the nation’s access to healthy dairy products.”

The Dairy Price Stabilization Act would help stabilize dairy prices by better aligning supply and demand. Under the program, individual dairies would have the choice of either maintaining their current production level (plus an allowable year-over-year growth rate based on market indications) or expanding their production and increasing their share of the market.

Dairies choosing to increase their market share would pay a fee during the first year of expansion which is paid out to their fellow dairy farmers who are maintaining their current share of the market. This creates a rational system that allows the market to absorb increases in production by providing a tangible financial incentive for most dairies to manage their production growth.

The structure of the bill is based on unbiased economic analysis and modeling conducted in the past 18 months. Both the growth rate and market access fee would be determined based on market indicators including feed costs which are the largest cost factor for producers in states like California. A producer board of directors would be established to advise the Secretary of Agriculture on any necessary adjustments to program operations. The bill empowers farmers by allowing them to vote on whether to enact the program and, three years after it commences, to vote on whether to continue it.

Costa was joined by four other members of Congress in introducing the bill, including Reps. Peter Welch (D-Vt.), Joe Courtney (D-Conn.), Rick Larsen (D-Wash.), and John B. Larson (D-Conn).

“After the worst year in recent memory, the time for comprehensive dairy reform legislation has arrived,” said Courtney. “I am pleased to join with Congressman Costa and others on this effort that will help stabilize dairy markets and protect our farming families.”

“The Washington state dairy industry is the tenth largest in the nation. The 128 dairy farms in Whatcom County, in my district, produce the second greatest amount of milk in the state,” said Larsen. “This means many local jobs and hardworking families depend on stability in the dairy industry. Every day, countless farmers and families throughout my district suffer through the roller coaster that is the dairy market.

“Rep. Costa’s bill makes important steps toward stabilizing the price of milk, which is a top priority for dairy farmers. While I recognize this is only a first step in responding to the concerns that dairy farmers have around the country, this is an important step, and I am happy to support Rep. Costa’s legislation today.”

“Continuing volatility within the dairy industry has devastated Vermont’s hardworking family farmers and their counterparts across the country. We have responded with important short-term support measures, but we must not delay in finding a path to long-term reform,” said Welch. “This bill sets an important marker as we find consensus within the industry about how to ensure the survival and prosperity of dairy.”

Added Larson, “I believe in reward for a hard day’s work. But, because of the volatility in milk prices, small dairy farmers in Connecticut, New England, and throughout our nation have been denied a decent living. We need to bring commonsense reform to the market that protects the livelihood of our small dairy farmers, and the food that average Americans put on their table.”

People Power

By Robert Milligan

Dairy manager’s focus has turned to outdoor activities. More correctly stated: first-line employees on dairy farms and other seasonal businesses can now focus on growing crops and other outdoor operations.  Their managers must also focus on leading, supervising and coaching these employees.

In today’s complicated, competitive, ever-changing world superior productivity and business success requires an extraordinary workforce.  Many of you have heard or read my discussion of control focused vs. quality-focused supervision.  A key contrast is the reactive nature of the control-focused vs. the proactive coaching of the quality-focused.

Let’s look at a recent and startling piece of research by Gallup. The research sought to determine the impact of the manager’s approach to coaching employee performance on employee engagement.  Employee engagement is the degree of focus on successful performance to enable the business to succeed and has been shown to be a key determinant of business success.

The employees in the research were asked how involved their supervisor was in their performance.  The three categories were:

• My supervisor focuses mostly on building on my strengths

• My supervisor focuses mostly on fixing my weaknesses

• My supervisor does not focus on either meaning the supervisor provides little or no performance feedback

They found a dramatic difference in the engagement level:

• 40% were actively disengaged when performance issues were ignored.

• 22% were actively disengaged when performance discussions focused on weaknesses.

• Only 1% was actively disengaged when performance discussions focused on strengths.

Two important messages are found in these results:

• Employees want and need performance feedback.

• Performance discussions should primarily focus on building on strengths.

A third and overriding conclusion is that attaining an extraordinary workforce with superior productivity and great job satisfaction does not happen by accident.  It requires a proactive approach to workforce issues. To help you move toward an extraordinary workforce, we ask four questions:

1) What is an extraordinary workforce?

The Gallup work clearly shows the key to an extraordinary workforce is engagement.   An engaged employee is one who gains great satisfaction from working to fulfill his/her performance expectations and contribute to the success of the business.

2) How do we know if we have an extraordinary workforce?

Owners and employees who are part of an extraordinary workforce would enthusiastically answer “YES” to two questions:

• I have everything I need and am confident I can meet and exceed my performance expectations?

• I am excited — even passionate — about meeting and exceeding these expectations to enable the farm or other business to succeed?

Start by thinking about yourself.  Can you answer “yes” to these questions?  Now think about how other owners and employees would answer the question.  Perhaps the next step is to ask them.

3) What is needed to answer “yes” to each of the questions?

An answer of “YES” to the question “I have everything I need and am confident I can meet and exceed my performance expectations?” requires each of the following:

• Training and continuing professional development: The key word in the question is “confident.”  Training, coaching and continuing opportunities to grow are required to succeed and especially to be confident that one can succeed.  Many of you have been watched March Madness (NCAA college basketball championship tournament).  Think of the training, coaching and practice required to have the confidence to execute the play that will determine the outcome of the game or to make the winning free throw.

• Clarity of expectations – behavior and performance – “chalking the field:”  Continuing our March Madness analogy.  Think of the clarity provided to the players by knowing the rules of the game and by the expectations set by their coaches.  Members of a dairy farm extraordinary workforce also require this level of clarity.  This clarity includes establishing clear employee performance expectations.

• Performance feedback: Dairy farm workforce members cannot answer that they are meeting and exceeding performance expectations until these expectations are established AND they are receiving positive, redirection and negative feedback.

An answer of “YES” to the questions “I am excited — even passionate — about meeting and exceeding these expectations to enable the farm or other business to succeed?” requires each of the following:

• An excellent and well trained supervisor.

• Outstanding business/course/club leadership.

How can our dairy farm or other business provide what is needed to get” YES” answers?

Let’s start by returning to planting those crops.  Think about how the incredible progress in crop yields and quality of the last several decades has been made.  The answer is twofold: outstanding research and the implementation of systems and processes to utilize that research.

How then do we get “YES” answers?  I think you know the answer – research and systems/processes.  We have the research from organization like Gallop. What we need now are the PROACTIVE systems and processes to implement that research.

Specifically “YES” answers to the two questions – and a dairy farm extraordinary workforce — can only happen with systems and processes for:

• Hiring employees with the competencies to succeed – minimize mis-hires.

• “Chalking the field.”

• Performance feedback.

• Continuing growth and professional development.

We can help you develop and implement those processes and systems to attain an extraordinary workforce.

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.

By reinventing the dairy department and leveraging the health and wellness attributes of dairy products, retailers can build loyalty and differentiation among high-value dairy shoppers, according to research from the Innovation Center for U.S. Dairy. Building stronger connections to health and wellness in order to drive a dairy department reinvention project will be a key component of the Innovation Center for U.S. Dairy Booth 4157 at the Food Marketing Institute (FMI) show in Las Vegas, May 11-13, 2010.

“Helping shoppers better understand the role dairy plays in living a healthier lifestyle for them and their families, and communicating consumer benefits within the department, will allow retailers to better connect with their shoppers,” said Scott Dissinger, senior vice president – sales and marketing for Dairy Management Inc.^™ (DMI). DMI manages the national dairy checkoff program on behalf of the nation’s dairy farmers and supports and staffs the Innovation Center for U.S. Dairy. “Retailers have the opportunity to leverage dairy to strengthen their association with health and wellness, which will help them become a trusted source for all dairy-related health and wellness information, and help increase overall dairy sales.”

The three-year Dairy Department of the Future research project was spearheaded by a coalition of DMI, The Dannon Company and Kraft Foods. The coalition’s comprehensive testing and research found that while shoppers have a basic understanding that dairy products are healthy, they aren’t getting the specific information they need about the specific health and wellness benefits or essential nutrients naturally found in dairy products in the store. To address this, the coalition produced a 24-page Dairy Department Reinvention Activation Guide, making it available in the Innovation Center for U.S. Dairy booth at the FMI show. It offers retailers a how-to guide with activation tips and best practices for a successful reinvention project, which can increase unit sales by up to 3% and could grow dairy department sales by as much as $1 billion.

The Dairy Department of the Future research shows that health and wellness continues to become more important to shoppers and is a key driver in their purchase decision making. For example, the research encourages retailers to inspire shoppers through a dairy department reinvention by providing messaging that educates them about new dairy products and ways to use them, including:

• Providing healthy recipe ideas that include dairy products
• Assisting shoppers in assembling healthy meals with product bundles
• Segmenting the dairy aisle by creating special interest sections, such as “healthy snacking”

“A reinvented dairy department is stimulating, fresh, modern, clean and organized,” Dissinger said. “Elevating communication about dairy’s role in supporting a healthier lifestyle and providing specific consumer benefits will strengthen a retailer’s storewide health and wellness proposition.”

Eastern DairyBusiness ran an article on the project in the April 2010 edition. Visit http://dairywebmall.com/dbcpress/?p=5730.

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

Opinions & Sacred Cows

by Ron Goble

Since this is dairy month I especially wanted to find something positive to write about. I can’t believe that I found it at the United Nations, of all places. Normally, I don’t expect anything good to come out of the UN, but we can actually applaud a report released recently by that organization.

It seems as though U.S. dairy farms have the world’s lowest emissions of greenhouse gases (GHGs). Compared to the global average for dairies, American dairies emit about 45% FEWER greenhouse gases per unit of milk produced.

I must admit, I did a double-take when reading a headline in one of our California ag publications: “Dairy group welcomes results of U.N. emissions study.” I wondered what the catch was. There was none, I’m happy to say.

The Food and Agriculture Organization (FAO) of the UN, said the dairy sector accounts for around 4% of all global GHG emissions, with 2.7% coming from milk production and 1.3% from meat production from dairy cows and non-milk producing dairy calves. Most emission figures for other industrialized nations are in the same ballpark as those of the U.S., but don’t quite reach our standards yet.

By contrast, methane emissions from dairies in developing nations have a ways to go. According to the FAO report, marginal improvements of feed digestibility would go a long way toward achieving significant reductions in methane emissions.

At a time when environmental regulatory agencies are putting a lot of pressure on the dairy industry, seeing a report with a positive spin is good news indeed.

William “Bill” Van Dam, chairman of Dairy Cares, a coalition of California dairy organizations dedicated to dairy sustainability issues, has been quoted in several news stories that “this is good news…and shows that we’ve made progress reducing our carbon footprint while also pointing the way for developing nations to do a better job.”

Dairies located in the industrialized regions such as North America, Europe and Australia/New Zealand had the lowest carbon footprint, with North America the lowest of all. The dairy industry in these regions probably won’t stop there. In 2009, the U.S. dairy industry under the Innovation Center for U.S. Dairy, already announced that it is taking additional measures to further reduce GHG emissions by another 25% by 2020.

By contrast, the biggest emitters of greenhouse gases identified in various regions of the world are dairies in: Central and South America, Western Europe, West Asia and North Africa, Sub-Saharan Africa, and South Asia.

I’m sure the innovative dairy producer in the U.S. will continue to outperform the rest of the world when it comes to maintaining the most environmentally efficient operations through advancements in technology. In the same breath, however, we need to remind air and water boards that at some point tighter restrictions could easily regulate us out of the dairy business if they are too zealous.

Have an opinion or response? E-mail Ron Goble, Associate publisher/editor, Western DairyBusiness at: rgoble@dairybusiness.com

By George Cudoc and Frank Welcome, DVM

Proper management is the key to success in any enterprise, and the dairy business is no exception. Every successful producer must have accurate and reliable records to make sound management decisions.

Records of identification, production, reproduction, udder health, disease, feed efficiency and finances help producers with the many decisions they must make every day. Collecting and organizing data, then turning it into information, can help cull the right cow, feed the best ration, select the best genetics, and make profit-enhancing management decisions. This use of management data is the key reason herds using DHI records consistently produce more and higher quality milk than herds that do not, yet only 50% of dairies use this structured herd management system. Helping dairymen manage their herds using  information is one of the roles played by Dairy Herd Improvement (DHI) programs like the one at Dairy One.

The DHI program has animal genetics and individual cow value ingrained in it all the way back to its’ beginning. In recent years the DHI program has become more of a management-oriented program. When the information is properly used, there is a tremendous economic return from the investment required to obtain the records.

As herds increase in size, less individual attention is paid to one particular cow. As a result, larger herds now require more effective tools for making dairy management decisions. These decisions are based on information summarized by a computer, allowing the dairy producer to have management reports available for an individual cow, a group of cows or the herd. These reports then allow the quality and effectiveness of management to be improved by using information in a condensed format.

DHI records are presented three distinct ways:

1) test day data, such as milk produced, components made, health indicators like somatic cell count (SCC), and efficiency measures, like MUN.

2) lactation information, such as ME305 day milk, peak production; and event recording, such as breeding and pregnancy.

3) herd summarization information, like herd pregnancy risk, cull rates and rolling herd average.

Milk production records, including pounds of milk, fat percentage, protein percentage and SCC, are integral parts of any dairy management record system for groups of cows, and are best collected and summarized on individual cows as compared to bulk tank averages.

Reproductive records should include calving, breeding and fertility data as well as date of birth, date of all estruses or heats, breeding dates including the sire used and results of veterinary checks including pregnancy checks.

Health records should include all vaccinations, all diseases and treatments, and the SCC data from the analysis of the monthly milk records. Reasons for culling animals and problems on a specific day should also be included in the records.

The dairy producer should choose programs and reports that best suit their needs. Those programs and reports should provide analyses of milk production, reproduction, udder health and milk value data, allowing comparisons among individual cows within the herd, or groups of cows within the herd.

The data should allow dairy producers to determine how they compare to themselves over time or to other dairy producers, so they can determine the strong and weak points of their operations. This comparison allows dairy producers to determine the areas they can most improve in their herd management. Reports will enable you to evaluate management changes made to improve productivity or reduce particular threats, such as mastitis infection rates.

The collection of raw data enables dairy producers to compute management reports, which will provide herd summaries, and cow exception reports. These allow dairy producers to manage their herds more efficiently so they can spend less time with their records, managing only animals needing attention on a particular day. An example of this might be cows over 70 days in milk and not yet serviced (see Table 1).

Table 1.      Cows over 70 days in milk not yet serviced

Dairy Herd Improvement (DHI) records provide producers information to use in improving their herds’ production efficiency. DHI records are computerized and may be maintained on a desktop personal computer (PC) or on a larger system at a processing center. The information is collected by an outside DHI technician on the farm and uploaded to a location for loading into a mainframe or server computer.

For many producers who do not have a computer, DHI paper “mailed back” records offer a record-keeping system without the financial investment of a computer system and the time to learn to use it.

Management reports may be defined by dairy producers with DHI records and used to guide their daily management activities. These reports may be adapted and customized for various parameters the dairy producer considers important. Reports are available for culling guides, management lists of practices to be performed at various stages of lactation, heifer management reports, lactation graphs and calving records, herd health records, inventory for animals, semen usage, somatic cell information and various herd analysis packages which compares individual animals to the herd.

All computers can store, list and print data. However, many software programs include graphic displays for ease in evaluating the information to assist in decision making (see Figure 1). You may obtain graphs of individual cows, groups of animals within the herd or the entire herd.

Figure 1. Many software programs include graphic displays for ease in evaluating the information to assist in decision making. You may obtain graphs of individual cows, groups of animals within the herd or the entire herd.

These graphs are not essential in a record-keeping system, but are sometimes much easier to understand, evaluate and use than data tables. Breeding and health information displayed graphically quickly shows if the reproductive performance of a group of cows or an individual cow is within the goals established by the dairy producer.

The DHI program provides milk producers an opportunity to obtain a tremendous amount of data regarding their dairy cows at a very small cost compared to the value. DHI assembles that data into useful management information each month. It is the responsibility of the producer or the manager to interpret that information to help manage the herd more effectively and improve the efficiency and profitability of the dairy operation.

When all is said and done, maybe the real question should be “Why not DHI?”

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

How to reach us…

George Cudoc, DHI Support, DairyOne, in Ithaca, N.Y. Contact him via e-mail: george.cudoc@dairyone.com.

Frank Welcome, DVM, is Senior Extension Associate with Ithaca QMPS, Ithaca, N.Y. Contact him via e-mail: flw2@cornell.edu.

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

Editor:

I am one of those Californians that you talked about in your article (Dave Natzke’s National Perspective, March 2010). I would like to respond to your recent editorial. I would first like to say I didn’t like Farve in Green & Yellow being a 49er fan and I really could not stand all the Chesseheads at OUR stadium. But when I got to meet them we actually had a lot in common. I think that is the problem. The perception that we are all that different is not true.

I have been a person who always liked the Midwest and have many close friends in the dairy business as well as the whole farming community. I do find some of Mr. Natzke’s quotes humorous and some offensive. I don’t like to be broad brushed by someone who doesn’t do the daily in-and-out work of a dairyman. Especially now when so many have lost so much of their equity from years of hard work.

In your article you talked about the dairy herd numbers in the Midwest declining by almost half. I can tell you a lot of them went West. Because of the unbelievable land prices in the late 1980s to early 2000 in Southern California many dairyman sold their farms and moved to the Central San Joaquin Valley and doubled or tripled there herd size. At that time there was no sexed semen and with those large dairies with 40% cull rates, I wondered how California got so many Happy Cows? Did they hatch them or were most of them bought in the Midwest? I know that there were a lot of HAPPY MIDWEST DAIRYMAN selling off their excess cattle for large amounts of money. That was a great income without the stress and cost of growth.

Recently a lot of those same people who bought those cattle have moved to the Midwest. I wonder Mr. Natzke, if they are now Chesseheads or Califorians? All I am saying is that we are all in this together.

I would argue with Mr. Natzke that the only part of the dairy industry that lost money in 2009 was the individual dairy, not members of IDFA or NMPF. So why look to them for answers? I would think they are “happy” with the way things are.

The Bain Report, as it is called, paints a positive future for the dairy industry. I was just wondering that slice of the pie, or crumb of the pie, the individual dairymen will get?

I want to be innovative and hopeful that my family will follow in my footsteps just like almost all dairy families. However, with the boom-and-bust pricing system we have now, it puts a dark shadow on both. The system is broken we need to fix it so that ALL facets of the industry can grow with innovation, hard work and not lose just because of bad timing.

I would hope that a group of intelligent people, which I believe Mr. Natzke is a part of, would come up with ideas that would help all dairymen and that the dairy industry would prosper and not divide them with some of the statements in the article.

On the inside cover (of that issue) Ron Goble wrote a very scary article about the EPA and its ideas for the future of the dairy industry. We are a small fraternity of people and we are getting smaller by the minute. I would hope that we could be united – not divided – and fight those types of things, which are much more important like our livelihood and individual survival.

Sincerely,

Hank Van Exel

By DairyBusiness Staff

TULARE, Calif. – The debate surrounding supply management continues, months after the discussions began back in 2007-2008. While numerous dairy organizations have voiced approval of some of the proposals, nothing concrete has been enacted by the industry or government legislation.

One of the best attended seminars at World Ag Expo earlier this year was a panel of industry experts sharing their ideas and proposals. Here are some of what they had to say before a stand-room-only crowd.

DOUG MADDOX, Riverdale, Calif. dairyman and former president of Holstein USA.

Maddox, as moderator of the panel, set the stage for the discussion by bringing everyone up to date on how the industry got to where it is today. “What happened? $9 milk! Will it happen again?” he asked.

“The strategy for every successful dairyman: produce, produce, produce,” said Maddox. “Our dairy herds have better genetics, health, nutrition, equipment, facilities and management. We can make milk. That’s our expertise.

“The problem we have is volatility, but volatility is not new, but each cycle gets worse. Volatility really started in the 1990’s but greatly accelerated in the after the turn of the century…and it will not change on its own,” he said, referring to work done by Dr. Bill Herndon of Cornell University.

“People will tell you this is a 100-year aberration, a 100-year flood that won’t happen again. People, this is the fourth time (its happened) in 10 years! So its to the point that volatility is getting deeper, wider and worse. We are on about a three-year pattern resulting from supply and demand. We are dealing with a range of +3.5% to -2% change in milk production, according to Cornell calculations,” Maddox said.

Commenting on the work at Cornell, Maddox said that supply-demand imbalances of greater than 1% magnitude creates substantial changes in milk price (either + or -). That can amount to as much as 50% – 60%, or $3 to $4/cow/day. Supply and demand is the overriding factor in the volatility.

Maddox cited imports of milk protein concentrate that was at 16 million pounds in 2008, up from about 5 million pounds in 2004. The same scenario was seen in imports of butter and other fats and oils derived from milk. It went  from 2 million pounds in 1999 to about 10 million pounds by 2008.

Maddox mentioned sexed semen “the real 800-pound gorilla in the room,” that will account for 500,000 extra heifers expected by 2010-2011. “Can CWT take care of it? Maybe. But I specialize in genetics, and think we can make ‘em faster than they can kill ‘em,” he declared.

Maddox outlined the following long-term options (with his comments in italic):

1) Two-tiered system like Canada/European Union with high price for quota milk, low price for surplus. “Will that work? You bet it will work. I was in Canada not long ago and talking with a producer. He compared his Holland, Canada 140 cows and 1500 cows in Nebraska…comparing Canada with US last 12 years, 75% of the time made more total profit on 140 cows than they did on 1,500 in the US.

2) Support Price – SB 1645 with price based on production costs. I support it and think it would fly. I’d love to have it based on my cost of production. It’s one of the programs out there.

3) “Free market” – National Milk Producers Federation and DFA has one similar to that aimed at the Global Market. They want deregulation and want to do away with support prices and MILC. I’m not against that, but smells like what we had before in California, which gives the milk processors control over the industry, and I don’t want to go back there.

4) Dairy Price Stabilization Program, which Syp will present, calling for all dairies to be involved and all dairies under the same rules.

5) Do nothing – maintain the status quo. The Baines report supports this. In the next 10-15 years, the world will be short of milk and if we are going to be a player, we need to gear up for that in the international market. I don’t deny that at all. However, I don’t want to produce milk before we have the market. Lets wait for the signals.

GARY GENSKE, a New Mexico dairyman and owner/partner in the accounting firm Genske Mulder & Co.

Through the year, Genske’s firm has produced a lot of cost studies with dairy clients doing business in 29 states. “In 2008, those clients averaged $17.53/cwt and lost money in the futures market. But what isn’t said is that producer costs were also at record highs. In that good year,” Genske said, “cost of production was $17.41/cwt, which netted dairymen an average of only $0.61/cwt.

“What the bottom line doesn’t tell you is that you needed $1.50/cwt just to service the principle debt and personal living allowances. So when some say we had a record year in 2008, we really did not.”

Genske pointed to milk prices from September 2009 in the Midwest at $12.74/cwt and a high of $11.80/cwt in the West, while cost of production figures were at a low of $15.59/cwt and a high of $16.99/cwt. Arizona had the biggest spread between milk price and cost of production at nearly $6/cwt.

Losses per hundredweight were averaging $3.40 in the Midwest and ranged from a low of $3.86 to a high of $4.98 in Western states. Genske estimated average yearend losses for 2009 at $4.05/cwt across the U.S. Some producers will do better, some will do worse, he said.

Genske’s 2010 projections: estimated an all-milk price of about $15.50/cwt with feed costs for hay and silage equivalents at $175 and grain at $200, still $8.05/cwt. However, looking at futures markets at the time of his presentation, he dropped the all-milk price estimate to $15/cwt, which increased projected losses from $1.14/cwt to $1.50/cwt range.

Genske said on California’s 1,700 dairy farms  losses will amount to an estimated $1.9 billion.

In 2009, the losses to the U.S. economy, according to Genske’s calculations, showed 9 million dairy cows at $3/day equal $10 billion for the year. In synergy dollars equal nine times that figure or $90 billion.

He compared the dairy losses to the concern reported on various media outlets for a week or so that the Florida citrus industry could potentially lose $2 billion if they experienced a freeze.

“You never heard anything about the devastating losses the dairy industry was actually experiencing. We lost $10 billion and haven’t seen us on the news at all,” Genske declared.

At the end of his presentation, Genske pointed out that if producer milk prices had kept pace with retail milk prices, dairymen would be receiving $20.33/cwt today, instead of the $12.74/cwt they actually receive.

“We produce milk from 9.2 million cows…and have to ask ourselves a question. Do we keep things the way they are, or at times cutback 1 or 2% when all told to do that? A cutback at the proper time could mean a profit of $3/cwt rather than loss of $4 or $5/cwt.

SYP VANDER DUSSEN, president of Milk Producers Council, Chino, Calif.

No one here is unaware of the financial chaos we are experiencing. We’ve seen ups and downs and keep thinking things will get better, or we’ll let the market work. Well, why did it always get better in the past? Why did it get better? The numbers may stun you.

Total U.S. dairy producers in 1982 numbered 297,800. By today, that number has dropped to 62,000, an 80% reduction in the last 27 years. That’s an average of 161 dairies leaving the industry every week.

“Always have dairymen to sacrifice during the down times as they exit the industry,” he said. “We reduce the milk supply a little and prices recovered. We thought that was the market working, and it was as far as sacrificing dairymen goes. In the last eight years, more ups and downs.”

All extra milk must, by definition, flow to the lowest value, in that the higher valued product demand is satisfied. So, that extra tanker of milk presents to the pool a $10/cwt value, but the producer will receive the blend price ($15/cwt?). That loss of $5/cwt is borne by all producers in the pool.

Cooperatives simply do not have any incentive to resist that overproduction because: 1) Producers demand of their co-ops to take all the milk they wish to produce. 2) The co-op makes its money on the “Make Allowance.” 3) When the blend price goes down, it affects only producers, not co-ops. 4) It makes sense for producers to produce all they want, all the time, regardless of demand, because the price decline caused by overproduction is imputed to all producers.

So those who do not grow are unfairly affected, Vander Dussen said.

While MPC came up with a supply management plan several years ago, with milk prices at $20/cwt, the proposal didn’t find traction among dairy producers. However, interest in the supply management concept showed a sharp increase when milk prices bottomed out at $9/cwt.

MPC’s Dairy Price Stabilization Program has a “base.” The word “base” is misleading.  There is no restriction in this program on how much a producer may produce “base” is really just a number from which fees and receipts are calculated, he explained.

Base will be the highest of 2007, 2008 or 2009 – producers’ choice. Base never goes down. It will always be the higher of:

• What you recently produced, or,

• Historical base

“No Producer is prevented from producing however much he wants. No restrictions. There is only a disincentive and an incentive,” Vander Dussen said. “The disincentive is more severe when milk is not needed. The incentive is more attractive when milk is not needed.”

All money collected from those who pay the market access fee goes to those who did not exceed allowable growth.

A board of 12 producers will set the market access fee and the percentage of growth allowed. Vander Dussen gave three examples:

Situation 1: Too much milk nationally.

Market Access Fee: $1.50/cwt on all milk when base is exceeded.

Allowable growth: 0%

Situation 2: Production/Demand in line

Market Access Fee: $.50/cwt on all milk when base is exceeded.

Allowable growth: 3%

Situation 3: Not enough milk nationally.

Market Access Fee: 0

Allowable growth: Unlimited

For More Information, Vander Dussen suggested visiting: www.MilkProducers.org and www.StableDairies.org.

MARVIN HOEKEMA, founder and president, Dairy Decisions Consulting, Visalia, Calif.

“For the record, growth management programs (GMP) may or may not work,” said Hoekema.

• A key functional component of the GMP’s is to determine supply/demand balance in setting growth.

• Regardless of the layers, understanding balance requires a functioning and transparent price discovery system.

• Oligarchies (a handful of firms pricing product) are not efficient at setting prices.  The GMP’s have not addressed this fundamental problem.

The milk pricing discovery system is dysfunctional.

• Continued lift in manufacturing make-allowances and FMMO consolidation (supported by Stephenson…one of the GMP price modelers) has shifted nearly all of the pricing risk in the supply chain to the milk producers.

• Dairy product pricing is now set by a handful of firms and their behavior moves the market.

• The USDA system is now full of non-reconciled reports (milk production, NASS pricing surveys, among others) and continued low-ball price projections.

• Unregulated milk product imports (MPC’s) continually flood the market, not just when the price is high.

Fix the system!

• Roll-back a portion of the make allowances to distribute a greater share of pricing risk throughout the supply chain.

• Address pricing power consolidation by replacing FMMO’s in some regions with co-op owned MAC’s which can much better send regional balance signals and able to write direct priceXsupply contracts.

• Require quarterly milk-flow reconciliation by NASS and the inclusion of 100% reporting on dairy commodity price points.

• Require a quarterly sources/uses report on the who and where of milk pooling.

• Use the CWT tax to fund a New Zealand-style export board to actually sell product instead of coddling NFDM exports with the competitor, Fonterra.

Major GMP critiques:

• Why will use of the USDA to forecast and price milk market balance work any better with another layer of bureaucracy?  Why expand a broken price discovery system?

• Controlling supply is just another lethargic price distortion the market will price around unless the price discovery system is fixed.

• Milk pricing does not happen in a world market vacuum. GMP does not address currency cross-rates nor unregulated MPC imports. (Will Fonterra be charged a market access fee?)

• The Nicholson-Stephenson model analysis has several unanswered questions and troublesome assumptions, the greatest of which is how it can project a flat-line price.

• I expect GMP to further consolidate pricing power because this is not recognized as a core problem. This means price risk will overwhelmingly remain at the farm level.

For more information on Hoekema’s analysis, visit his website: http://milkmarketwatch.com and for an updated milk market newsletter, blog, and fundamental analysis, e-mail: mhoekema@mhoekema.com.

For the complete panel discussion via podcast, please visit www.DairyLine.com and click on “Dairy Profit Seminars.” Then click on “WDB Seminar #2: Is Supply Management the Answer?”

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Like a lot of strong medicine, past federal dairy programs have cured some industry ills, but caused some unpleasant side effects.

A group of dairy policy specialists from Missouri and Wisconsin want the industry to remember that as debate ramps up on dairy provisions  for the 2012 Farm Bill. So they have produced a pair of reports, one  an overview, the other in-depth, on the benefits and unintended  consequences of past dairy policies.

“These reports are like the slip of paper that comes with a prescription drug,” says Scott Brown, a dairy economist at the  University of Missouri. “We list some of the side effects.”

The reports are the product of the Dairy Policy Analysis Alliance, a partnership between the University of Missouri’s Food and Agricultural  Policy Research Institute (FAPRI) and the University of Wisconsin-Madison Department of Agricultural and Applied Economics. Co-authors  include Brown and UW-Madison agricultural economists Bob Cropp, Brian Gould and Ed Jesse.

The reports focus on what’s been tried in the past, rather than  delving into current policy proposals. Recent decades provide plenty  of lessons about the strengths and weaknesses of various policy  strategies, Brown notes.

“Dairy herd owners liked the whole-herd buyout program used in the  1980s to reduce milk supplies and raise milk prices. Beef producers  didn’t like all of those cows added to the meat supply,” he says.

“Likewise, producers liked price supports, but if the price is set too  high, the U.S. can collect surplus dairy products from around the  world. Taxpayers didn’t like owning warehouses full of cheese, butter  and nonfat dry milk in the 1980s.”

One of the reports, Dairy Policy Briefs, provides one-page  descriptions of 11 key concepts: volatility, price supports, income  loss, supply management, revenue insurance, trade, milk marketing  orders, classifications, pricing and pooling. The other report, a 54-pager titled Dairy Policy Issues for the 2012 Farm Bill, goes beyond  the basics.

The reports came out just in time. Rep. Collin Peterson (D-Minn), chair of the House Agricultural Committee, has already initiated a  series of hearings on the next Farm Bill and has called on commodity  groups to join in the discussion.

The House Ag Committee continues its 2012 Farm Bill hearings: May 14, Morrow, Ga.; May 15, Troy, Ala.; May 17, Lubbock, Texas; and May 18, Sioux Falls, S.D. For additional information on specific sites and times, visit http://agriculture.house.gov/hearings/schedule.html.

Legislators have their work cut out. Producers are very concerned  about price volatility (since the last Farm Bill was passed, the  industry has seen some of its best and worst markets in the past half-century). But Congress is under tremendous pressure to limit spending.

“We’ve tried supply management and direct payments. All of these  programs had costs,” Brown points out.

The dairy policy reports can be downloaded at www.fapri.missouri.edu or http://future.aae.wisc.edu/alliance_index.html. A limited number of  printed copies are available by contacting Scott Brown (brownsc@missouri.edu) or Ed Jesse (evjesse@wisc.edu).