The milk price/input cost relationship rained on most issues in April. Things won’t blossom in May.
By Dave Natzke
Earlier this year, I used the metaphor of elephants stampeding a village to describe challenges facing the dairy industry (“Elephants are approaching,” February 2009 Western DairyBusiness). In late April, I attended the National Dairy Leaders Conference (NDLC), near Denver, and there was a very big elephant in the room – the current relationship between milk prices and input costs.
From the bus tour to the DeHaan family’s Great Western Dairy, near Ault, Colo., to the shuttle back to the airport, economic conditions were the major topic. Western producers seemed most negatively impacted, with many citing losses of $3-$5/cow/day, or more than $100,000/month/1,000 cows.
Dan James, Mountain Plains Farm Credit Services, said people are underestimating the extent and impact of the dairy economy. While losses of $210-$350/cow/year ($1.00-$1.50/cwt.) were considered serious in the past, they were generally short term. Now, producers are losing $100-$200/cow/month, and James projects losses of $500-$750/cow for the first six months of 2009 alone.
Marv Hoekema, Dairy Decisions Consulting, Visalia, Calif., said he expects “supply destruction,” which will change the landscape of where milk is produced.
There was also discussion of the failure of the New Frontier Bank of Greeley, which some producers estimated to have financed at least one-third of the dairy cows in Colorado, plus some dairies in adjoining states. It may be difficult for other smaller banks to meet the region’s dairy credit needs.
But dairy doesn’t stand still or operate in a vacuum, no matter the financial situation. Issues such as labor/immigration reform, dairy trade, animal disease traceability and food safety, federal orders, animal well-being and environmental regulation and future dairy innovation helped drive the milk price “elephant” from the NDLC conference for short periods of time. Watch our website (www.dairybusiness.com) for articles addressing those topics.
Management changes occurring
Echoed both at NDLC and in a study by The Hondo Group, a marketing communications company serving the ag industry, the rapid milk price decline caught many producers by surprise. Survey respondents noted that only 25% had contracted milk for 2009. At the time of the Hondo survey in March 2009, the average mailbox price was $12.05/cwt., while those who had contracted milk last fall were still enjoying a mailbox price of $18.27/cwt.
The primary difference between previous periods of low prices and today is the cost of feed.
Understandably, under these conditions, cost-cutting measures are a major focus. However, The Hondo Group study found dairy producers are also seeking tools to improve efficiency.
When asked what changes were being made on dairy operations to increase profitability under the current economic situation, producers responding to a survey by The Hondo Group said delaying equipment purchases was the primary adjustment. Several respondents also noted new facility construction delays.
Other areas of specific management changes included:
• Cow numbers: Cow number adjustments were equally split between those increasing and decreasing herd size. West Coast herds were most likely to be reducing herd size, bringing herd numbers back in line with facility capacity and aggressively culling less productive cows. East Coast and Midwest herds were increasing herd size, by pasturing dry cows and using existing facilities more efficiently.
• Labor: Of those reducing employees, the average reduction was 30% of the overall on-farm workforce. Owners/operators were completing more of the day-to-day activities themselves, cutting back hours of part-time staff.
• Feeding: Producers relied more on high-forage diets. Mineral price shopping is intensifying, but dairy producers are keeping minerals at high levels to maintain reproductive performance. Ration concentrates, protein sources and “extras” were most likely to be reduced.
• Herd health: Emphasis was placed on herd health protocols and procedures to avoid the downside risk to changes in this sensitive area. Changes to vaccination programs and other areas of herd health were not anticipated.
• Breeding: Survey respondents are mating cows to more young sires and purchasing lower-priced semen or using breeding bulls more heavily. Older proven bulls are still being used, but breeders are opting to utilize those in their own inventory and are reducing embryo transfer work. Interest was noted in genomic-tested sires and sexed semen.
Of the survey participants with more than 250 cows, 70% are looking to increase efficiency vs. just reducing costs. That creates opportunities for companies providing inputs and services who can prove their value/benefits to dairy producers. Producers are looking to those companies for ways to maximize their dairy’s return on investments.
While dairy producers focus on cutting costs and improving returns on investment, some see a light at the end of the tunnel – and it’s not an elephant equipped with a headlamp. Many anticipate this cycle reversing by 2010.
The new face-to-face
One of issues frequently arising when it comes to challenges related to animal well-being, environmental regulations and confusion surrounding technologies and practices used in modern dairy farming is that few people now have a direct link to dairy farmers. Without that personal link, communication has broken down and relationships have been lost.
Sure, we can post facts on websites, but, at best, facts only change minds. Feelings change behavior, and as sterile and impersonal as computers may seem, using “social media” may be the only chance we get to meet dairy consumers “face to face.” Internet vehicles such as YouTube, Facebook, Twitter and Flickr are adding a new personal connection dimension to communications.
Through the dairy checkoff, Dairy Management Inc. has launched “myDairy,” a social media initiative. The “myDairy” strategy includes: online monitoring of websites, blogs and other online commentary; marketing of dairyfarmingtoday.org on YouTube, Facebook and Flickr; and a password-protected toolkit to help dairy advocates tell their story online.
I participated in one of two DMI webinars describing “myDairy,” and learned a great deal. But what really opened my eyes to the need for the dairy industry to embrace social media occurred while tracking anti-animal agriculture groups on the Internet, and seeing how effective they are.
Billy Travis, a Kentucky dairy producer, National Dairy Promotion and Research Board member and chair of Dairy Management Inc.’s Producer and Industry Relations Committee, wrote a column on social media for DairyBusiness Communications. You can find that column, and more information on “myDairy,” by visiting http://dairywebmall.com/dbcpress/?p=2512.
Travis noted nearly 60% of Americans under 30 years of age say they obtain most of their national and international news online. There are an estimated 112 million bloggers; 3 billion photos are posted on Flickr; Facebook, a social networking website, has 140 million users; and LinkedIn, a business professional networking website, has 30 million users. Market research indicates more than 373 million people currently use social media. That number is expected to grow to 1 billion globally by 2012.
“With less than 2% of the U.S. population involved in farming today, many people don’t have the opportunity to visit a dairy farm to learn firsthand how we produce safe, wholesome and nutritious milk and dairy products,” Travis wrote. “That’s an important reason why social media needs to be on our radar.”
We in the dairy industry often say that if people just looked into our eyes to see our passion for farming and animals, they would understand and believe us. Social media is becoming the new “face to face.”