Archive for October, 2010

Records: A True Accounting – Spreadsheets aid management decisions

From financial recordkeeping to tracking management decisions, Ted Foster excels at crunching the numbers

By Susan Harlow

Ted Foster has never met a spreadsheet he didn’t like. You can understand why: There’s a lot of data to mine and manage, between Foster Brothers Dairy, the 400-cow dairy he co-owns with seven family members; and Vermont Natural Ag Products (VNAP), the family’s compost and soil amendment business. Both are located in Middlebury, Vt.

Foster uses business management software, Sage Peachtree Accounting, to assemble financial information. He downloads the data into Excel spreadsheets for up-to-the-minute pictures of how the businesses are doing and to make management decisions.

Using accrual accounting for each of several enterprises – dairy, crops, calf raising, VNAP – Foster is able to generate financial statements easily and quickly. It shows him how expenses and income in each enterprise are running for the current month, the previous month, last year and the current year to-date, as well as on a per-hundredweight basis, which makes it easy to compare his dairy to others in Farm Credit East’s annual benchmarking program

“I like it because I can tell where I am each month, and especially at the end of the year,” Foster said. “Cash accounting could look really good or really bad, but it wouldn’t be a true accounting of what the situation is at the moment. That’s the beauty of accrual accounting.”

The chart of accounts he uses is almost infinitely dividable, depending on what information he might need, and it makes accounting consistent. Once he set up the chart of accounts, Foster said, it was easy to post bills daily as accounts payable, using the lists of vendors already in the accounting system. Accounts receivable works the same way. Foster Brothers, for instance, sells hay, and Foster can generate invoices and quickly see who owes them and how much.

Then, at any time, Foster can bring up a list of accounts payable or receivable. Because most of the income and expenses are accrued during the current month, he can generate a balance sheet easily. “One problem with accrual is that the milk check arrives a month late for that month’s milk,” Foster said. Previous months statements can’t be closed out until the milk check arrives on the 20th.

Cropping is one enterprise Foster is still wrestling to move to accrual accounting, which accounts for financial events when the transaction is made, not necessarily when payment is made or received. “I would like to get crops into inventory and then account for them when they’re taken out and used or sold. But I can’t get a good handle yet on how to calculate shrink and bunk inventory.”

At the end of the year, Foster generates a spreadsheet projecting cow numbers, pounds of milk and milk price (based on Agri-Mark Inc.’s projections) for the following year, then fills in budget numbers, based on per-hundredweight costs

Spreadsheets are particularly useful in determining if a management change has worked out by measuring the results. “It’s all a matter of what numbers you want to track,” Foster said.

For example, when he thought the dairy was spending too much on teat dip, he broke out that expenditure under dairy supplies and began keeping track. He saw that if he could buy teat dip in bigger containers and change how the dairy fills dippers, using a power pump to fill them directly from the container, there would be less waste. His financial spreadsheets showed him he could justify building the addition needed to store those larger containers.

Take the issue of storing feed. Foster’s feeding spreadsheet tracks date, cow groups, the time groups are fed, pounds of refusals, and the percentage of programmed feed fed out.

“The feeder can look back and see how much cows ate,” Foster said. “He can see how much has been fed vs. the inventory, and how much should have been fed.”

He also has a spreadsheet with a monthly inventory of bunks, including density, tons of feed and other information, and how that compares to previous year.

Foster Bros. now stores its feed in open bays. Using data from both spreadsheets gave Foster a good idea of how much waste and shrinkage cost the dairy, and whether it’s worth buying a covered bin. Yes, Foster concluded from the data. “It’s another case where writing things down comes to fruition.”

Foster’s collection of spreadsheets includes:

an income over feed cost spreadsheet that tracks feed costs based on feed value, feed costs cwt. and per lb. of component, milk price and income over feed costs.

a fuel log listing each piece of equipment by number, gallons of fuel used, number of hours on the vehicle, and which enterprise has used it.

a spreadsheet for calf feeding, showing how changes in feed affect growth weight. “Our goal is to freshen by 22 months, or 80% of mature body weight,” Foster said. “As long as the feed program gets it there, we’re doing OK.”

To track everything pertaining to cows, from milk production to calving weights, Foster uses PCDart herd management software, also immensely useful in translating data into Excel to make management decisions. For instance, by tracking the cost per cow of feed ingredients and components, Foster can tell if the dairy is getting its money’s worth.

“It tells me if additives work and how much I’m paying to get each pound of protein and butterfat,” Foster said. “Is the digestibility too low? Fiber too high? What do I need to add for ingredients to make up for it?”

It takes Foster roughly 20 hours a month to do the recordkeeping and accounting. For now, he enters the numbers himself. “I understand the numbers a lot better if I input them myself, although some day I will probably get someone else to do that.”

Manipulating the raw data is one thing; getting the data is another. Foster provides paper charts for all tasks, making it easy for employees to fill in when, for example, they treat a calf.

“The rule at Foster Bros. Dairy is: If you do anything to a cow, write it down. I’ll decide later on whether to use it or not,” he said. It’s a tradeoff, though. “How much do you want to force guys to record stuff, or do you want to get the crop in?”

Once the data is in the computer, however, leave it to Foster to make the most of it.

FYI

Reach Ted Foster via e-mail: ttdfoster@sover.net.

Conversations: Ask your nutritionist about energy status at transition

Too frequently, transition cows show up in the ‘negative’ column due to metabolic disorders, production and reproduction problems. As producers and their advisors meet in the conference room (or kitchen), the conversation should focus on energy balance to help cows make a ‘positive’ transition.

By Ken Sanderson, D.V. M.

Every dairy cow experiences negative energy balance as she transitions from dry cow to lactation. Her lactation can be adversely impacted by the severity of the energy shortage. An energy shortage can affect peak milk, total milk and fertility. How quickly the cow recovers from negative energy balance, how quickly she returns to positive energy balance, is what matters. The faster the return, the better for milk production and reproduction.

1) Why does an energy shortage occur at calving?

The energy shortage occurs because a natural lag exists between the dairy cow’s need to generate large quantities of energy for milk production at calving and her ability to eat enough feed to meet this energy need. On a biological level, we know that how well the cow coordinates energy metabolism and glucose (energy) generation is a key determinate of milk, production and reproductive efficiency.

Ask your nutritionist for his/her opinion on the energy status of your herd.

2) Is all the cow’s energy truly produced in the liver?

Unlike monogastrics – poultry, pigs, etc. – the ruminant dairy cow absorbs very little energy though its gastro-intestinal (GI) wall. Instead, her liver plays a key role in coordinating energy metabolism. By that, I mean the production of glucose from 1) what we call gluconeogenic precursors, basically the various items that can be used to create glucose, and 2) from adipose tissue i.e. fat. Responsibility falls on the liver to coordinate the uptake of the various energy substrates, their metabolism and their export to body tissues. In early lactation, as the cow mobilizes body fat reserves for energy, there is a risk that fat will begin to accumulate in the liver. As fat accumulates, it becomes more challenging for the liver to efficiently coordinate energy production, and the tendency exists for the cow to favor the production of ketone bodies instead of glucose.

Ask your nutritionist to discuss ways of monitoring your herd for signs of problems with ketone body production as a result of fat accumulation in their livers.

3) What are signs of optimal liver function?

One of the obvious signs of optimal liver performance is the absence of metabolic problems. We know the vast majority of metabolic problems occur during the transition period. These would include clinical and subclinical ketosis, metritis, fatty liver, displaced abomasums and/or mastitis. If metabolic problems exist, the first step is to review herd management practices with your advisor(s). In an effort to understand the extent of metabolic challenge in the herd, nutritionists and veterinarians will run tests for non-esterified fatty acids (NEFA) pre-calving and beta hydroxy butyric acid (BHBA) post-calving. These tests provide good indicators as to whether or not the cow’s energy status is compromised by a build-up of fat in the liver.

Review with your nutritionist and veterinarian herd management practices to see if opportunities for improvement might exist.

4) How damaging is fat accumulation in the liver?

Well, even a small build-up of fat can decrease the liver’s metabolic functions and impact overall energy metabolism in early lactation. Liver fat accumulation generally is categorized as normal (<1% liver fat on a wet basis), mild (1-5%), moderate (5-10%) and severe (> 10%). With today’s genetic advancements for milk production, we know that virtually every cow faces energy challenges in early lactation. That means a mild-to-moderate level of fat accumulation is practically unavoidable. From industry surveys, we know approximately 50% of our commercial dairy cows have mild or moderate fatty livers, and many of these cows are struggling to manage to keep ketone body production (BHBA) at a safe level. Even if a cow has a mild level of liver fat build up, her ability to manage energy needs is significantly impaired.

Review with your nutritionist the history of metabolic problems – clinical and subclinical – on your dairy.

5) What can be done to protect the cow’s liver?

The first step is to make sure the basics of good herd management are in place. All cows should be well managed, comfortable and fed a well-formulated ration. Next, be sure an optimum level of rumen-protected choline is in the ration pre- and post-calving to ensure the transport of fat out of the liver, thereby avoiding the metabolic challenges related to poor liver function. Without rumen protection of the choline, little, if any, will reach the small intestine and be absorbed for use by the cow.

Ask your nutritionist about the use of a rumen-protected choline.

FYI

• Ken Sanderson, D.V. M. is Global Manager of Technical Service & Business Development for Balchem. Contact him via phone: 845-326-5627; e-mail: KSanderson@Balchem.com.

Environment: Little feet, big feat

Study shrinks dairy’s carbon footprint

Second study finds Jersey footprint is smaller when it comes to cheddar cheese production.

Greenhouse gas (GHG) emissions associated with a gallon of milk produced, processed and marketed in the United States are approximately 2% of  U.S. total emissions – far less than earlier figures reported about the global livestock industry incorrectly attributed to U.S. dairy.

The Innovation Center for U.S. Dairy commissioned the Applied Sustainability Center at the University of Arkansas to conduct a GHG life-cycle assessment (LCA) of fluid milk. Dr. Greg Thoma, professor of chemical engineering at the University of Arkansas and lead investigator of the study, presented the findings at the International Food LCA Conference in Italy this fall.

Researchers followed the journey of a gallon of milk from the beginning of the life cycle,  when crops are grown to feed cows; milk is produced and delivered to processors; through processing, packaging and distribution; all the way to the purchase and disposal of the gallon of milk by the consumer. The study used data from more than 500 dairy farms and 50 dairy processors, as well as from more than 210,000 round trips from farm to processing plant.

The study’s completion is a significant step in a comprehensive, science-based approach to measure and improve dairy’s environmental footprint. The identifies opportunities for efficiency and innovation across the fluid milk supply chain, including feed efficiency, manure management, energy management and fuel efficiency.

“The entire dairy industry – dairy producers, processors, manufacturers and brands – is working together to build on its long history of sustainability,” said Tom Gallagher, CEO of the Innovation Center for U.S. Dairy and Dairy Management Inc.™, which manages the national dairy checkoff.

Management practices effective

A key finding indicates management practices are an important driver of the carbon footprint for farms, plants and transportation fleets, rather than the geographic region, business model, or size of the farm or organization.

In 2008, the Innovation Center worked with industry stakeholders to develop a roadmap of opportunities to reduce GHG emissions and build business value. Ten projects are currently under way. These projects explore best and next practices for feed efficiency, manure management, energy management, improved packaging formats, processing technologies and fuel efficiency.

The Innovation Center has collected a variety of success stories, case studies and best practices, providing a platform for industry partners to learn from one another and make informed decisions.

“Sustainability has become a new way of living and a new standard for managing how we do business,” said Connie Tipton, president and CEO of the International Dairy Foods Association. “The study is helping dairy businesses to see that reducing GHG emissions not only meets consumers’ expectations for more earth-friendly products, but also reduces plant operation costs.”

The carbon footprint study will be published in a peer-reviewed scientific journal in 2011. In addition, studies on nutritional value, economic impact and environmental measures such as water quality and conservation are under way.

Jerseys: More cheese, smaller hoof

With more than 40% of U.S. milk production utilized in cheese, smaller Jersey cattle produce reductions in water and land usage, fuel consumption, waste output and green GHG compared to their Holstein counterparts.

Per unit of cheese, the Jersey carbon footprint (total CO2-equivalents) is 20% less than that of Holsteins, according to  findings from an LCA study presented by Dr. Jude Capper, Washington State University, at the joint meetings of the American Dairy Science Association and American Society of Animal Science. Conclusions were based on a year of dairy herd performance information from nearly 2 million dairy cows in more than 13,000 herds in 45 states. Capper and coauthor Roger Cady, with Elanco Animal Health, compared production systems using 1,500-lb. Holstein cows and 1,000-lb. Jersey cows. Although volume is lower, Jersey milk is higher in fat and protein content, yielding are 12.5 lbs. cheese/cwt., compared to 10.1 lbs./cwt. from Holstein milk.

Capper and Cady determined 8.8 billion lbs. of Jersey milk were needed to produce 1.1 billion lbs. of cheese, 19% less than the 10.9 billion lbs. required from Holstein milk. More Jerseys (91,460 animals) were needed to produce the same amount of cheese as Holsteins, but the total body mass of the Jerseys was 26% smaller. Total feed consumption decreased by 1.75 million tons with Jerseys, and Jerseys produced 2.5 million tons less manure. Less water, landand fossil fuels were required for the Jersey cheese, resulting in a 20% reduction in the carbon footprint.

The research was funded by National All-Jersey Inc., representing 1,000 producer members to promote the increased production and sale of Jersey milk and milk products.

FYI

■ The Innovation Center for U.S. Dairy provides a forum for the dairy industry to work together pre-competitively to address barriers and opportunities to foster innovation and increase sales. For more information, e-mail: innovationcenter@usdairy.com or go to website: www.usdairy.com/sustainability.

■ For more information on the Jersey study, contact National All-Jersey Inc. via phone: 614-861-3636; e-mail: naj@usjersey.com or website: www.usjersey.com.

Finance: What lenders want

Financial institutions expect more from borrowers – especially communication.

By Susan Harlow

You’ve heard it before, but it’s worth repeating, say agricultural lenders – communicate, communicate, communicate. So emphasized panelists from financial institutions at a recent Vermont Feed Dealers Association’s annual meeting.

Tough financial times make it more imperative than ever that producers talk to their lenders, as well as to suppliers to whom they owe money.

“Our worst losses are when a farmer is in denial and we hear they are in trouble from suppliers or others,” said Sarah Isham, senior agricultural loan officer for Vermont Agricultural Credit Corporation (VACC), a nonprofit lender with  a $50 million ag portfolio.

Vermont FSA lent a total of $45 million in the first three quarters of 2010 compared to $42 million last year. In a typical year, said Robert Paquin, state executive director, FSA would lend $25 million. During this latest dairy industry downturn, the agency has helped 200 borrowers restructure debt.

The lenders on the panel – from FSA, VACC, Yankee Farm Credit, and Community National Bank based in Newport, Vt. – all said they have money to lend producers. But they make sure their customers are qualified.

“We are making new loans, if you can show profitability, a good debt-to-asset ratio, and good management,” said Jennifer Conger of Community National Bank. The bank requires at least 20% equity to borrow, although beginning farmers can get by with less.

Institutions like Conger’s bank are busy restructuring loans through reamortization, temporary interest-only payments, and shifting equity.

Lenders said they want to see:

better records and financial training. FSA now requires every borrower to do a year-end business analysis.

Ditto for her bank, said Conger. “And we want year-to-date figures and projections – those are really key. Cash flow is very important.”

“We’re stressing better records now, and are putting that condition on loans,” said Ken Buzzell of Yankee Farm Credit. “There are covenants that we may not have had before.”

Buzzell said he’s asking for semi-annual – not just annual – financial statements. “We don’t want any surprises. We want balance sheets to be prepared, because the biggest protection people can have is working capital.”

no management slippage. “Farmers need to maintain high standards for production – make sure forage and milk production is good, keep good records and make sure your decisions don’t negatively impact milk production,” Isham said. “Good production is key to profitability when milk prices improve.”

risk management strategies. None of the lenders require marketing or risk management plans from their borrowers, but it’s something they like to see from their customers. “We risk-rate all loans – risk management would give them a better rating,” Conger said.

Whatever your credit plans for next year, don’t leave your lender in the dark.

“It’s like early detection – if you find a problem and can get ahead of it, we can do something about it,” Paquin said. “There are also more tools to use before you get behind in loan payments.”

Sweetening LGM-Dairy

The USDA/Risk Management Agency (RMA) has made some changes to its Livestock Gross Margin for Dairy (LGM-Dairy) program, in hopes of attracting more producers. The revised 2011 LGM-Dairy insurance plan will be available for sale on Dec. 17, 2010, and does not apply to policies sold before that date.

The program insures the difference between the expected and actual gross margins of milk over feed costs, using Chicago Mercantile and Chicago Board of Trade prices for Class III milk and corn and soymeal. It guarantees a minimum income over feed cost.

The pilot program is available in 36 states. Thus far, about two-thirds of the enrollments have been almost equally divided between Pennsylvania and Wisconsin.

Because of the cost of premiums, producers have been reluctant to sign up, said Gene Gantz, risk management specialist for USDA /RMA in Pennsylvania.

“We all know most producers have had limited cash available to try anything new during the past two years,” Gantz said.  When LGM-Dairy was started as a pilot program in 2008, “there was a horrible wreck in income over feed costs,” he said. “The first enrollees got a lot. But it takes a while for producers to get used a new program, and many missed this early opportunity.”

The changes include:

• The federal government will subsidize producers’ premium costs from 18% at no deductible, to 50% at $2/cwt. deductible. Currently the only subsidy is a reimbursement for administrative costs.

• Add another deductible level, at $2/cwt. Current deductibles run up to $1.50/cwt.

• Require premium payment at the end of the coverage period, instead of in advance.

• Adjust the amount and value of feed costs, based on information provided by National Milk Producers Federation.

“The subsidy and higher deductible level will likely change the dynamic towards cost,”  Gantz said. More producers will probably chose a higher deductible and apply it to more pounds of milk.

Gantz said producers are already looking more favorably on the program. The calls have changed from “How can you make this affordable?” to “How soon can we sign up and get the new changes?” he said.

The program will benefit any size dairy, he said. “Producers may treat it like when a new seed variety comes out – give it a try on a low level at first. They can take as little as one hundredweight per month and choose which months,” he said.

“The program is an opportunity to monthly enroll all or part of your milk to build a financial safety net and build a business plan for the next 10 months,” he said.

LGM-Dairy is sold on the last business Friday of each month. The sales period ends at 8 p.m. the following day. If expected milk and feed prices are not available in a particular insurance period, LGM-Dairy will not be offered for sale for that insurance period.

For more detailed information about LGM-Dairy, visit the RMA Web site at www.rma.usda.gov/livestock/.

FYI

Gene Gantz, RMA/USDA, 717-497-6397, gantz@pa.net.

For more information on Livestock Gross Margin for Dairy, contact a crop insurance agent. To find an agent, go to: www3.rma.usda.gov/apps/agents/

• Sarah Isham, Vermont Agricultural Credit Corporation, Montpelier, Vt., 802-828-5463, sisham@veda.org

Bob Paquin, Vermont Farm Service Agency, Williston, Vt., 802-658-2803, robert.paquin@vt.usda.gov

Jennifer Conger, Community National Bank, Derby, Vt., 802-334-7915

Kenneth H. Buzzell, Yankee Farm Credit
Newport, Vt., 800-370-2738, kenneth.buzzell@YankeeACA.com.

Fill your financial management toolbox

Dairy business managers have more tools than ever to analyze current conditions and aid future management decisions. The following list by no means identifies all the available tools – just the ones brought to the attention of the Eastern DairyBusiness editor through press releases and e-mails.

UW-Extension

Free, easy-to-use, on-line, decision-making tools are divided into seven categories: 1) Feeding; 2) Heifers; 3) Reproduction; 4) Production; 5) Replacement; 6) Financial; and 7) Price Risk. They are available at www.DairyMGT.info.

Center for Dairy Profitability

A number software programs, spreadsheets and CD-ROMS to improve production efficiency and profitability are available. For ordering and price information phone (608) 263-5665 or visit http://cdp.wisc.edu/Decision Making Tools.htm.

University of Illinois

Several Microsoft Excel based spreadsheet tools are available at www.farmdoc.uiuc.edu under the heading of FAST Tools (Farm Analysis Solution Tools).

University of Nebraska

G2034, Dairy Farm Income and Cash Flow Calculations is available at www.ianrpubs.unl.edu/epublic/live/g2034/build/g2034.pdf.

Michigan State University

Visit http://dairyteam.msu.edu/articles/bus_finl/accounting_software_comparisons.pdf.

Ohio State University

Visit http://dairy.osu.edu/resource/agsoft.html and http://dairy.osu.edu/resource/fmanage.html.

Iowa State University

Visit http://www.extension.iastate.edu/DairyTeam/Business.

eXtension

Visit www.extension.org/pages/Dairy_Cattle_Business_Management_and_Dairy_Farm_Labor.

University of Vermont

http://asci.uvm.edu/dairy/

Penn State University

Visit http://www.das.psu.edu/research-extension/dairy/pa-tool.

University of Florida

Visit http://dairy.ifas.ufl.edu/tools/index.shtml.

QMPS: PCR-based tests offer consumer safety, herd health assurances

Knowing that a particular food-borne pathogen is present on the farm provides an opportunity for farmers and their veterinarians to investigate and identify the means of reducing or eliminating the health threat to their herds and consumers.

By Paolo Moroni, DVM

The World Health Organization defines food-borne illnesses as diseases caused by agents that enter the body through the ingestion of food. It has been reported that in 2005 alone 1.8 million people died from diarrhoeal diseases, and a great number of these cases can be attributed to contamination of food and drinking water. Although the safety of food has dramatically improved overall, progress is uneven and food-borne outbreaks from microbial contamination are common in many countries.

Food-borne outbreaks are infections caused in humans by the consumption of contaminated foodstuff. The major pathogens implicated in this form of illness are Clostridium botulinum, Staphylococcus aureus and Bacillus cereus, which produce botulinum toxin, enterotoxins and emetic toxin, respectively. Bacteria such as Escherichia coli 0157:H7, Listeria monocytogenes, Salmonella and Campylobacter jejuni are just a few examples of food-borne pathogens associated with meat, raw milk or raw milk cheese which can cause severe symptoms to children and elderly people. Salmonella enteritidis is the most common reservoir and eggs or products thereof are the most frequently implicated foodstuffs.

To reduce the prevalence of food-borne diseases and microbial contaminations in food supplies, effectively monitoring the occurrence and distribution of bacterial pathogens in food is essential. There are many methodical programs like good agricultural practices (GAP), good manufacturing practices (cGMP), hazard analysis and critical control point (HACCP), which can significantly reduce the pathogenic microorganisms in food. But still, the role of pathogen detection technology is vital, which is the key to the prevention and identification of problems related to health and safety.

While the risk of contracting such diseases may be reduced by careful food handling procedures in child and elder clinical care facilities, the most successful strategy would be to ensure an outstanding food quality and safety along all the food chain, literally “from farm to fork.”

Conventional methods for the detection and identification of microbial pathogenic agents mainly rely on specific microbiological and biochemical identification. Conventional methods being used for the detection of pathogens are culture and colony counting methods and immunology-based methods. While these methods can be sensitive and inexpensive, they require more time to perform and to detect pathogens, which typically occur in low numbers in food.

Compared to non-conventional polymerase chain reaction (PCR) methods, which involve DNA analysis, conventional methods are more labor intensive, often lower in their ability to correctly identify truly contaminated foodstuffs, and can be more time-consuming.  It takes 2-3 days for initial results, and up to 7-10 days for confirmation. These are some of the reasons we occasionally see massive food recalls. Additionally, conventional methods may not have the capability to identify different strains of bacteria, information which is essential in food-borne illness source investigations.

Non-conventional PCR-based methods are becoming more frequently used and relied upon to quickly investigate and address food-borne pathogen outbreak situations and to monitor food-borne pathogens at the food source before an outbreak can occur

The QMPS Molecular Laboratory provides specialized research and diagnostic services as part of a mission to support the dairy industry through use of science-based methods and cutting-edge DNA-based technology.

The laboratory offers PCR-based bacterial detection and identification, and strain typing or “DNA-fingerprinting” techniques which can all be used to quickly and effectively monitor milk safety, as well as animal health. This includes weekly detection of Salmonella, shiga-toxin producing E. coli, and Listeria monocytogenes in bulk tank raw milk as part of the bulk milk surveillance project.

They also screen hundreds of bulk milk samples for MRSA (methicillin resistant Staphylococcus aureus) as part of the nation-wide survey by the National Animal Health Monitoring System. The integration of fieldwork, routine diagnostics, and specialized diagnostics and research at QMPS provides a unique opportunity to address issues raised at the farm, and to generate information that is taken back to our dairy producers.

Rapid diagnostics has positive impact at the farm

How rapid diagnostics can affect life at the farm is illustrated by a recent event.  Milk from a single cow used for family milk at a large farm was submitted to the QMPS Molecular laboratory for screening of common food-borne pathogens. The milk was positive for Shiga toxin E. coli. This particular strain of E. coli is particularly dangerous for young children, elderly people and those with other chronic diseases that diminish the effectiveness of their immune systems such as diabetes or cancer. The wife of the farmer was nursing a new baby and consuming the contaminated milk was placing the welfare of the baby in jeopardy. Further testing by PCR-based strain typing methods could have additionally determined if the milk was contaminated from the individual cow or from the farm environment. Only pasteurized milk is consumed on the farm today.

Knowing that a particular food-borne pathogen is present on the farm provides an opportunity for farmers and their veterinarians to investigate and identify the means of reducing or eliminating the health threat to their herds and consumers.

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

How to reach us…

Paolo Moroni, DVM, Ithaca Quality Milk Production Services, can be reached via e-mail: pm389@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.

‘Risk intelligent’ managers: Find the weakest link and fix it

Dairy businesses – like cows or plants – frequently have at least one ‘constraint’ that limits performance. For many dairies, it’s managing price risk and opportunity.

By Scott Stewart

Dairy producers often look beyond their own industry in search of techniques that work for other businesses. Human resource management and accounting practices come to mind as key areas where dairy farms share some of the same challenges and opportunities as other businesses.

And, if you’ve been reading the wider business media in 2010, you’ve seen a greater emphasis on risk management. Maybe that’s because so many companies – previously thought of as impervious to failure – have indeed failed because they did not properly manage risk. In fact, BusinessWeek recently published a special report on the subject, describing a new world with “permanent volatility” and offering the characteristics of a “risk intelligent” company.

Is your dairy “risk intelligent?” Perhaps so, in many key management areas. Dairy producers have become experts in balancing risk and opportunity in every aspect of production: animal health, rations, crop production, milk quality, facilities and more. For these fine-tuned businesses, the last frontier left to conquer is managing price risk and opportunity.

Find the weakest link

I belong to a peer group of executives that meets regularly to discuss business and management issues. (I too seek input from outside my own industry.) One of our guest speakers talked about the “Theory of Constraints,” popularized in a business management book called The Goal, by Eliyahu Goldratt. According to the Theory of Constraints, every organization has, at any given point in time, at least one constraint which limits its performance relative to its goal. A constraint can be internal or external, a machine, a person, or managerial, like a policy or procedure.

My ears perked up when our speaker described the origins of this theory. Agricultural scientist Carl Sprengel found plant growth is controlled not by the total amount of resources available, but by the scarcest resource – the limiting factor. Beginning in the 1920s, Justus von Liebig went on to popularize this science and called it “Liebig’s Law” or the Law of the Minimum. Plant growth could be improved, Liebig taught, when the most limiting nutrient was increased. Farmers learned to save a lot of resources by zeroing in on the most limiting factor.

In other words, to improve performance, find the one thing that’s holding you back, and fix it.

The Theory of Constraints can apply to today’s milking parlors, feed rations or crop production. Perhaps you have one person or one production aspect holding back the whole farm from being the best it can be. No one can improve until the weakest link is found and strengthened.

Is it marketing?

Increasingly, lenders and business consultants are using words like “essential” and “crucial” to describe the importance of price risk management on dairies. They see how skilled producers have become in production management, and they also know how “permanent volatility” can wreak havoc on the balance sheet. They are zeroing in on the one management area that is not yet so finely tuned: the management of farm marketing.

If we apply the Theory of Constraints to today’s dairy operations, one could argue marketing is indeed the most limiting factor. The absence of a consistent, disciplined approach to marketing means your business is open to risk in the forms of extreme revenue fluctuation and the squeeze of low milk prices with high feed costs. Removing these constraints on the financial side of the business enables the production side of the business to thrive and grow.

How? Consistent price risk management could put you in the financial position to expand or update facilities at the right time – when milk prices are at a low point.

Think about it: Everyone wants to expand when milk prices are high, driving up the costs of those investments and, consequently, increasing risk. What if you could expand or modernize when the cost of that investment was at its lowest point, rather than at its highest? That’s a successful business strategy.

So if a consistent, well-managed marketing approach is a constraint for you, how do you remove the constraint? The simple answer is you make a commitment to learn and manage marketing, both feed buying and milk pricing. That’s easy to say, but difficult to do. Some dairy producers have tried to get started by dipping their toe in the water, marketing sporadically, only to be dissatisfied with the results. Other producers study marketing, endeavoring to learn all they can about it, and find themselves overwhelmed and frustrated.

There are likely limiting factors at work here. To be a better marketer, consider again the Theory of Constraints. Figure out what’s holding you back, and remove that barrier.

Key factors affecting

marketing performance

Having spent nearly 30 years in the commodity business, I have found five key factors impacting marketing performance:

1) Knowledge

2) Time

3) Risk tolerance

4) Discipline

5) Experience

Successful marketing requires proficiency in each of these areas. Any one area could be a constraint, holding back overall performance. For example, perhaps you are very knowledgeable about the fundamentals of milk pricing. Maybe you are excellent at making decisions and laying out a proper milk marketing strategy. That’s great. But if you lack the discipline or the time to pull the trigger and execute the strategy, your milk marketing knowledge is all for naught, and your balance sheet is going to feel the effects.

Evaluate your marketing process the same way you evaluate other aspects of your business. Methodically look at it, figure out what you are good at doing, and focus on trying to improve your most limiting constraint. For example:

• Do you know and understand all the tools and strategies available to you as a marketer, and how and when to apply each tool or strategy?

• Do you have the time to work through all the potential price scenarios, develop risk and opportunity management strategies for each possible scenario, and consistently watch the markets for signs that triggers are about to be hit?

• Do you know the impact of each potential marketing strategy on your farm’s overall financial position? Have you set goals for your marketing that will help guide your decision-making? Are all the members of your management team in sync with those goals, so your decisions are not second-guessed?

• Once all this goal-setting, analysis and planning has been done, do you have the discipline to act when triggers are hit? (Note: This is a key constraint for dairy producers as markets trend upward. Producers, understandably excited about higher prices, tend to forget that when markets move up fast, they can also move down fast. Those who abandon a disciplined approach in favor of “letting it ride” can miss out on the long-term benefits that a consistent, disciplined marketing approach provides.)

• What past experiences are skewing your judgment? Do you have enough experience to keep all market news and events in perspective?

Because these success factors are consistently present among the best and most satisfied marketers, we’ve developed an objective assessment tool that helps producers identify and zero in on marketing constraints. Producers tell us such an assessment is a good place to start. Marketing is a big frontier. If marketing is the one thing holding back your business in the “permanently volatile” and uncertain economy ahead, you need to commit to it, find a method to dissect the challenge, and get it done.

Leaders laser in

One more word of advice as you begin: We can learn from our grain producer friends who have been dealing with commodity markets regularly for more years than we have in dairy. The lesson is this: Don’t let all the hype and news about markets overwhelm you and keep you from setting up a consistent, disciplined approach tailored to your operation’s needs. There will always be advisors with divergent opinions and news articles with market predictions. To be successful, don’t fall into the trap of trying to predict what the market will do. Instead, use your time to prepare for uncertainty. Filter out the noise and learn the strategies that will deliver the best possible overall price for the long-term, considering your own risk tolerance and financial situation.

Marcus Buckingham, in his management book, The One Thing You Need to Know, observes the best business leaders consistently laser in to the core of any concept.

“Today, you must excel at filtering the world,” he writes. “You must be able to cut through the clutter and… distinguish between what is merely important and what is imperative.”

What is the “one thing” holding your business back from achieving its goals? To save yourself a lot of frustration and wasted energy, find your most limiting constraint and focus on that limiting factor first, until that is no longer your primary constraint. Then repeat, repeat, repeat. Now you’ve created what business management experts call a “cycle of continuous improvement.” That’s intelligent.

Disclaimer: There are no guarantees that using strategies will translate into successful marketing.

FYI

Scott Stewart is president and CEO of Stewart-Peterson Inc., a commodity consulting and marketing services firm based in West Bend, Wis. He can be reached via phone: 800-334-9779 or e-mail: scotts@stewart-peterson.com. Details about Stewart-Peterson’s Marketing Assessment ProfileSM (MAP) can be found at www.stewart-peterson.com.

Camerlo recognized for historic contributions to dairy promotion

National Dairy Board honors dairy leader with Richard E. Lyng Award

RENO, Nev. – The National Dairy Promotion and Research Board (NDB) honored the late James P. “Tom” Camerlo as the 2010 recipient of the Richard E. Lyng Award for his dedication and service to dairy promotion. Camerlo, a dairy producer from Florence, Colo., was recognized at the Joint NDB/National Milk Producers Federation/United Dairy Industry Association (UDIA) Annual Meeting in Reno, Nev.

The award is named after former U.S. Department of Agriculture Secretary Richard E. Lyng, who played a key role in implementing policies that led to the establishment of the NDB 25 years ago. The Lyng Award honors dairy industry leaders who have made a significant contribution to dairy promotion that benefits the entire dairy industry.

“Tom Camerlo leaves an unprecedented legacy and commitment to America’s dairy producers,” said Paula Meabon, Pennsylvania dairy producer and NDB chair. “He was a champion of (helping) dairy producers control their own destiny, and was a true leader within the dairy promotion and policy arena, both domestically and internationally.”

Camerlo was a leader in dairy promotion for more than four decades. He first became involved in 1965, when he was elected to the board of the Western Dairy Association and, subsequently, to the National Dairy Council®. He played a key role in the formation of UDIA in 1970 and held a seat on the UDIA board through last winter.

In 1983, Camerlo and other producer leaders worked to arrange for a referendum that led to the formation of the national dairy checkoff program and NDB. In 1995, he worked to further unify dairy promotion with the creation of Dairy Management Inc.™, which united NDB and UDIA.

“He knew the best way for dairy producers to promote their products for their own betterment and the betterment of the industry was through a unified checkoff program,” Meabon said.

Camerlo also played a critical role in the formation of the U.S. Dairy Export Council® (USDEC), where he became one of the early board directors of USDEC and the first chairman of its Trade Policy Committee.

In 2004, Camerlo was elected chairman of USDEC. In the five years that he served as chair, he led policy and promotion programs that supported his long-standing belief that expanded export trade would benefit America’s dairy producers and the industry.

In addition to his role on the DMI board, Camerlo also served as a founding board member of the Innovation Center for U.S. Dairy and was a strong ambassador of the Innovation Center’s mission to grow sales by working with and through the dairy industry.

As part of the Richard E. Lyng award, the NDB also will make a $2,500 contribution to the Colorado State University on behalf of Camerlo and his family.

For more information about the national dairy checkoff program, visit www.dairycheckoff.com.

Gallagher: Use dairy legacy to build trust, increase sales

DMI CEO Urges United Effort to Establish a New Foundation of Consumer Trust for Dairy

Reno, Nev. – In a time when public trust in dairy can no longer be taken for granted, the dairy industry needs to be unified and proactive in building that trust, according to Tom Gallagher, chief executive officer of Dairy Management Inc.™ (DMI), which manages the national dairy checkoff. Gallagher spoke at the 2010 National Dairy Promotion and Research Board (NDB)/United Dairy Industry Association (UDIA)/National Milk Producers Federation (NMPF) Joint Annual Meeting in Reno.

The challenge of public trust in overall animal agriculture has been made more acute by the fact that Americans are becoming increasingly disconnected from farming, Gallagher said, noting that agriculture today employs less than 2 percent of the nation’s workforce. “So, the trust in farming that used to be built, neighbor to neighbor, no longer exists,” he said.

This, coupled with the activities of anti-animal agriculture activists who are well-funded, well-organized, and increasingly focused on dairy, creates an increasing threat to ongoing consumer trust in dairy – and therefore to dairy sales, Gallagher noted.

Three Pillars of Strength

“The good news is that we are in a better position today to assure trust in dairy than even a year or two ago,” he said, noting that dairy has three new areas of strength its side – systems and science, commitment to community, and multiple pathways to reach consumers.

Regarding “systems and science,” Gallagher pointed to the formation of several key systems that provide reassurance to consumers.

Through the Innovation Center for U.S. Dairy, which allows the dairy industry to work together to help grow sales, the industry has completed a scientific study of dairy’s carbon footprint that sets the record straight on dairy’s actual impact on greenhouse gas emissions. The Innovation Center also formed an industry task force to address food safety challenges in dairy plants.

Further, the National Milk Producer Federation has developed the Farmers Assuring Responsible Management (FARM) animal care program, which has the support of more than half of the nation’s milk supply.

The dairy industry’s commitment to community “starts with stewardship of the land, extends to the economic impact that dairy producers have on the community, and comes to life in the commitment to kids through nutritious foods and physical activity in schools,” Gallagher said.

To that end, DMI has created a new foundation with the goal of raising $10 million annually to reward schools that provide for better nutrition, including kid-friendly foods like dairy, and physical activity. “This initiative is a critical part of your reputation in your community,” Gallagher said.

Paths to Build Trust and Loyalty

The third area of strength relates to the multiple paths to build trust and loyalty among consumers. One example is the Innovation Center’s Consumer Confidence Committee, where the entire industry can speak with one unified voice to food retailers, quick-serve restaurants and others. Another path is through dairy marketing partners such as Domino’s Pizza and McDonald’s, which can share dairy-friendly messaging on their packaging and in their promotions. And, Fuel Up to Play 60 partners can communicate with consumers through their Foundation aimed at overcoming childhood obesity.

“We also have the human resources of the entire dairy industry – thousands of staff from promotion, co-ops, processors and manufacturers, who call on businesses, institutions and schools every day,” he added. “That, plus the nation’s dairy producers, who can get even more involved in the effort to advance dairy’s priorities in your communities.”

All of these strengths working together can create a tipping point to establish a new foundation of consumer trust in the industry, where positive voices drown out the negative voices, Gallagher said.

The industry will build this trust from its legacy of positive imagery and reputation embodied in its farmers, who:

  • Feed the world
  • Fight childhood obesity
  • Address hunger and malnutrition
  • Bring jobs to local communities
  • Provide a path to energy independence
  • Assure food security
  • Care for the land and their animals

“That’s your legacy. And telling this story is how we will build a new foundation of consumer trust for dairy,” Gallagher concluded.

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

USDA announces improvements to the LGM-Dairy insurance plan

USDA’s Risk Management Agency (RMA) announced changes to the Livestock Gross Margin for Dairy Cattle (LGM-Dairy). The Federal Crop Insurance Corporation Board of Directors (Board) approved changes to LGM-Dairy, making it a more attractive option for the management of financial risks associated with dairy farming. The revised 2011 LGM-Dairy insurance plan will be available for sale on Dec. 17, 2010.

“In recent years, dairy farmers across the nation faced a crisis and thousands considered bankruptcy,” said William J. Murphy, RMA Administrator. “These improvements, including a premium subsidy, are substantial and will be of great benefit to American dairy farmers. I applaud the Board’s decision to approve these changes, which will make LGM-Dairy even more helpful in managing dairy risk,” said Murphy.

Improvements announced include the following:

• Revised timing of premium payments – Premiums for LGM-Dairy will now be due at the end of the coverage period rather than at the time of purchase.

• Subsidy – A premium subsidy will now be available for those policies that ensure multiple months during the insurance period. The subsidy amount will be determined by a deductible selected by the policyholder. This deductible will range from zero to $2.00 per hundredweight of milk in $.10 increments. Policyholders choosing a zero dollar deductible receive a lower premium subsidy of 18 percent. Those choosing the highest deductible of $2.00 per hundredweight of milk will receive a higher premium subsidy of 50 percent.

• Higher deductibles offered – The maximum dollar deductible has been increased from $1.50 to $2.00. Higher deductibles allow producers flexibility to cover a minimum gross margin, providing protection similar to catastrophic coverage.

• Adjustment of feed loads – Feed values have been updated based on information provided by the National Milk Producers Federation.

LGM Dairy provides protection to dairy producers when feed costs rise or milk prices drop. “Gross margin” is the market value of milk minus feed costs. LGM-Dairy uses futures prices for corn, soybean meal, and milk to determine the expected gross margin, and then, the actual gross margin. At the end of the 11-month insurance period, a dairy farmer is paid an insurance indemnity if the gross margin guarantee is larger than the actual gross margin. The price the farmer receives for milk and the local market is not used in these calculations.

LGM-Dairy is sold on the last business Friday of each month. The sales period ends at 8:00 p.m. the following day. If expected milk and feed prices are not available in a particular insurance period, LGM-Dairy will not be offered for sale for that insurance period. These changes do not apply to LGM-Dairy policies sold before December 17, 2010.

For more detailed information about LGM-Dairy, please visit the RMA Web site at http://www.rma.usda.gov/livestock/.

DariTech adds 15-gallon Westwaard pasteurizer

DariTech added a 15-Gallon Westwaard Pasteurizer to its line-up.

DariTech, Inc., Lynden, Wash., added a 15-Gallon Westwaard Pasteurizer to its line-up, designed for smaller dairies or as a colostrum pasteurizer, providing an efficient way to protect  calves from harmful diseases associated with feeding raw waste milk. The company also makes 40-, 60, 120- and 150-gallon models. The pasteurizer includes a fully automated PLC control and heavy-duty stainless steel construction. For more information, phone: 800-701-3632; or visit www.daritech.com.

background_banner