INSIDE THIS ISSUE

Feeding for Milk Components: A Good Return on Investment, Dr. Joanne Knapp, Fox Hollow Consulting, Columbus, Ohio
MarketView...US. Dairy Outlook Brief 2010, Dr. Cameron Thraen, Milk Marketing Specialist, The Ohio State University
Molds and Mycotoxins, Dr. Bill Weiss, Dairy Nutrition Specialist, The Ohio State University
Income Tax Planning… Critical for 2009???, Ms. Dianne Shoemaker, Extension Dairy Specialist, Ohio State University Extension

Announcements

2009 Ohio Dairy Challenge Contest – Even Larger Than Last Year’s Contest
Dr. Maurice Eastridge, Extension Dairy Specialist, The Ohio State University
Bonnie's "Buckeye Moos" Update
Ms. Bonnie Ayars, Extension Dairy Program Specialist, Ohio State University Extension

Calendar of Events

Reviewing Nutrient Costs: 2009 vs. 2008 vs. 2007 Harvest Years
Dr. Joanne Knapp, Principal Technical Consultant, Fox Hollow Consulting, Columbus, OH (top of page) pdf file

The cost of providing NEl (Net Energy of lactation) in dairy rations this harvest year is closely paralleling the 2008-2009 crop year and is substantially down from the 2007-2008 crop year (Figure 1).  In contrast, the cost of providing MP (Metabolizable Protein) is averaging higher than in the 2008-2009 crop year and twice that of the 2007-2008 crop year (Figure 2).  Much of this cost is due to the price of feedstuffs that supply “bypass” or rumen undegradable protein, including the animal proteins (blood meal, hydrolyzed feather meal, and meat and bone meal), corn gluten meal, and whole cottonseed.  Given the decreases in the livestock and poultry industries in terms of placement and slaughter numbers, the supply of the animal proteins will likely continue to be limited relative to demand and prices will stay up.  However, don’t take these as golden predictions; I’m not an economist nor do I have a magic crystal ball!

Based on mid December wholesale prices for central Ohio, feed commodities fall into three groups:

Table 2.  Prices of dairy nutrients, and actual wholesale, breakeven (predicted) and 75%
confidence limits for feed commodities used on Ohio dairy farms.

MarketView...US. Dairy Outlook Brief 2010 (top of page) pdf file
Dr. Cameron Thraen, Milk Marketing Specialist, The Ohio State University

In the last installment of Buckeye Dairy News (BDN), I discussed the ebb and flow of the U.S. dairy herd. To recap, I showed a chart with the growth and decline of the number of dairy cows in the United States over the time period January 1998 to September 2009. The chart showed the dramatic increase in that number over the period January 2004 through July 2008 and equally dramatic decline through September 2009. The new chart, which can be viewed each month on my webpage http://aede.osu.edu/programs/ohiodairy shows the latest. Dairy cow numbers declined only 7 thousand head from October to November 2009. This is a dramatic slowing in the draw-down after declining an average of 34 thousand head each month over the preceding 5 months. The current USDA estimate puts the national herd at 9,091,000 head. This may be only a pause in the contraction or it may reflect the easing of the financial pain as milk prices have strengthened and input costs have fallen even more, resulting in positive gains in income over feed and other operating expenses (this chart is also available on my website).

My comments in this issue of BDN center on the chart shown below. Chart 1 shows the time path for (1) the Class 3 milk price (line) and (2) the annualized rate of change in milk production (bars) for the United States over the period January 1998 through November 2009.

Chart 1. United States: Class 3 milk price and annualized rate of change in milk production 2004-2009.

The chart visibly shows the inverse relationship between the rate of growth in milk production and the market clearing price. At the start of the period, early 2004, the U.S. milk production was contracting, growing at a negative rate, and the Class 3 milk price was increasing to peak at over $20 per cwt. The high milk price (and all other milk prices determined by this price) drew in more resources (mainly cows) and production growth returned to the positive, eventually reaching the 4 to 5% rate by mid 2005. Even before this period, while growth was well under 2% annualized rate, the Class 3 price declined to the $14 to 15/cwt level. The pattern of high(low) growth of U.S. milk production and low(high) milk prices continue over the decade.

Now consider the latest period shown in Chart 1. Milk production in the United States started to decline well before the infamous cheese price collapse of January 2009. The annualized rate of growth started its downward movement back in late 2007 and with the exception of two months in 2008, has been on a decline over the last 2 years. Contraction, as measured by negative annualized growth, occurred only in the months of August through November 2009. The slow rate of growth in U.S. production helped push the Class 3 milk price up from $10 to 14/cwt. The annualized rate of growth in milk production, while negative for November 2009, is showing the first sign of moving back toward expansion. If this indicates that the financial distress is easing for the nation’s dairy farms, this is good news. However, if this also forecasts that the contraction in the U.S. dairy herd is over, this may not be good news for the milk price and ultimately net returns to milk production. With aggregate domestic and international demand still weak, a too rapid return to positive growth in U.S. milk production will mean a weaker U.S. milk price in 2010.

The current Chicago Mercantile Exchange (CME) futures market is forecasting a Class 3 milk price for the coming year, January through December 2010 at $15.60/cwt. The December 17 issue of the USDA Livestock, Dairy and Poultry Outlook has the Class 3 milk price in the $15.15 to 15.95/cwt range. The USDA price forecast is based on a continued decline in the U.S. milk cow numbers, falling to an average of 8.97 million head for 2010. This is a level last experienced in the United States in December 2003. If U.S. milk cow numbers continue to slide, milk prices for 2010 will remain above $15/cwt, and with some modest growth in international demand, could even reach the $16/cwt level by mid 2010. At that time, it might be a good decision to use the CME futures market to lock in these better prices or use the CME options market to put a floor under the milk price. Also, consider learning more about the Livestock Gross Margin Insurance product available to dairy producers. Each of these provide a management tool to which can assist in avoiding a repeat of 2009.

Molds and Mycotoxins
Dr. Bill Weiss, Dairy Nutrition Specialist, The Ohio State University (top of page) pdf file

Because of weather conditions during the past growing season, mold and mycotoxin contamination of some crops, particularly corn, is common.  Molds are organisms and mycotoxins are chemicals produced by certain species of molds that are toxic to animals.  Visibly moldy grain may or may not have mycotoxins and mycotoxins can be found on feeds that are not visibly moldy.  Moldy corn that is not contaminated with mycotoxins is not as nutritious as clean corn.  Molds consume nutrients, usually the most digestible one, thereby reducing the nutrient content of the corn.  Moldy corn typically has higher concentrations of fiber and lower concentrations of starch and fat than clean corn.  If allowed, cattle will select against consuming visibly moldy hay and fiber digestibility can be reduced when cattle are fed visibly moldy silage.  Experiments directly evaluating the effects of feeding moldy grain to dairy cows are lacking. The consensus among nutritionists is that moldy feed most likely will reduce feed intake, which will then result in reduced milk production.  Most of the research on moldy feeds have used hay or silage, and these typically comprise the majority of the diet.  Corn and other grains usually make up less than one-third of the diet.  Also because of all the mixing and blending that occurs during combining, storage, and feed manufacturing, mold is likely much less concentrated in grain than in hay or silage.  This means that the increased amount of mold on corn grain this year may not be a general problem for cattle.  However, if you observe visibly moldy corn (for example a moldy pocket in a bag) it should be discarded and not be fed to cows because of the potential decrease in intake and milk yield.

            Hundreds (perhaps thousands) of different mycotoxins exist and unfortunately we know very little about most of them.  The mycotoxins that are most commonly identified in feedstuffs this year are deoxynivalenol (DON; vomitoxin), T-2, zearalenone, and fumonisin, with DON being by far the most common. 

1. Mycotoxin contamination of grain is not uncommon; cows (and people) have probably been consuming these compounds for centuries.  Various surveys conducted in different years and in different countries typically find that 25 to 50% of feed commodities have detectable concentrations of DON (typically samples with detectable concentrations have concentrations less than 1 ppm).  Therefore, you should not be overly concerned if grains have low, but measurable concentrations of DON (less than or equal to 1 ppm).
   
   
2. Distribution of molds and mycotoxins is not uniform.  Tremendous variability in concentrations can occur within a single batch or bin of feed.  This means that results from a single sample may not be meaningful.   Multiple individual samples are needed to determine whether mycotoxin contamination is a concern.  A single negative sample does not mean that the grain is mycotoxin free and a single sample with high concentrations of mycotoxins does not mean that the bin of feed should not be fed.
   
   
3. Distillers grain can be a substantial source of mycotoxins.  Fermentation removes  starch from the corn, resulting in an approximate 3X concentration of the remaining nutrients and contaminants.  Corn that contained 1 ppm DON will produce distillers grain with about 3 ppm DON (on a dry basis).  Some extremely high concentrations of DON have been reported in distillers grain this year.  You should purchase only distillers grains that have been adequately sampled and analyzed for mycotoxins and contain an acceptable concentration (probably less than about 5 ppm DON on a dry basis).  Because of the potential of mycotoxin contamination and other reasons (e.g., variable fat concentrations), the amount of distillers grains in dairy cows diets should be limited to 10 to 15% of diet dry matter.
   
   
4. The concentration of DON in the total diet that causes problems for dairy cows is not well defined but total diets with less than 3.5 ppm DON (dry basis) are probably okay when fed to lactating cows.  Some studies that fed the specific compound (not actual contaminated grain) found no adverse effects at rates greater than 10 ppm, but most people think it is not a single mycotoxin that causes problems but the combination of different mycotoxins and molds that occur in naturally contaminated grain that cause the problem.  A recent experiment was conducted with dairy cows fed diets with no detectable DON or a similar diet (3.5 ppm DON in the total diet) that included contaminated corn (7.5 ppm DON) and wheat (2.4 ppm DON) and they found no difference in feed intake (54.1 lbs/day for control and 52.8 lbs/day for the contaminated diet) and no difference in milk yields (73.5 and 78.3 lbs/day for control and contaminated treatments, respectively).  The function of certain immune cells, however, was depressed in cows fed the contaminated grains.  Another study that fed DON contaminated wheat found no effects on intake when the total diet contained approximately 5 ppm DON.  However some field reports suggest that total dietary concentrations greater than about 2.5 ppm DON are associated with production losses. Fresh cows (first few weeks of lactation) may be more sensitive to mycotoxins than other cows because they are recovering from the stresses associated with calving, have relatively low intakes but high milk production, and can be immunosuppressed.  Diets with up to 3.5 ppm DON (dry basis) may be acceptable for later lactation cows but may not be acceptable for fresh cows.
   
   
5. If you are faced with feeding mycotoxin contaminated feeds, the most effective solution is to limit the inclusion rate of contaminated feeds to dilute the concentration in the total diet.  Certain feed additives are often included in diets to ‘bind toxins’.  Data supporting these claims are generally quite limited.  Many compounds will bind  aflatoxin (a type of mycotoxin that should not be common this year) and reduce its concentrations in milk.   The chemistry of aflatoxin is very different from many other mycotoxins, and compounds that bind aflatoxin often do not react with other mycotoxins.  Limited data derived from cows suggest that some yeast-based products (e.g., glucomannans) may have some beneficial effects when fed with DON-contaminated diets.  Field reports suggest that some clay-based compounds may also have some beneficial effects with DON-contaminated feeds.  These compounds will increase ration costs and some of them can reduce the availability of certain minerals (especially copper and zinc) and vitamins.  The safest and most effective method of reducing the impact of feeding mycotoxin contaminated feed is simply to dilute out the contaminated feed.

Income Tax Planning…Critical for 2009???
Ms. Dianne Shoemaker, Extension Dairy Specialist, Ohio State University Extension (top of page) pdf file

Most dairy producers are glad to see this year come to a close and are looking forward to better conditions in 2010.   Even though many farm families are facing net operating losses, income tax management is still an important issue that must be high on the “to-do” list as 2009 comes to a close.

Why are income taxes a concern if a farm lost money this year?

• It is possible for a farm that lost a considerable amount of money to still have a positive cash farm income and owe income taxes…and not have the dollars available to pay them.

How could a farm lose money all year and still owe income taxes?

• This depends on how the family has been able to handle their cash shortfall.  If the farm had savings or a line of credit and is current on their bills because they used their savings, a line of credit or another loan to pay those expenses, then the expenses are deductible in this tax year.  But, if the farm has open accounts, those dollars are not deductible expenses until they are paid.

What do you mean by open accounts?

• Normally, a farm will purchase feed, supplies, parts, or services and then be billed for them.  Current accounts are those which are paid within 30 days.  Once the balance due has been unpaid for more than 30 days, it is considered an “open” account.  After 30 days, there is usually an interest charge on the dollars owed to the business.  If the vendor is willing to extend this type of credit to a customer so they can keep purchasing inputs, these open account balances could become quite high.

Since the farm owes the money and will pay it eventually, why can’t they deduct the expenses now?

• For tax purposes, the farm business can’t deduct the expenses until they have actually paid for them.  If a line of credit is used to pay the expense, or the payment is financed with a longer term loan, it is considered paid for tax purposes.  As the line of credit or loan is paid off, only the interest on that repayment is deductible, not the principal paid…because it represents that expense already deducted on the farm’s taxes.

Back to the original question, how can a farm that lost a lot of money still owe income taxes?

• This is the frustrating situation that many unsuspecting families may face this year.  Income was low and there were not enough dollars from the sale of milk, cull cows, crops, whatever, to stay current on their bills.  If they did not have access to other dollars, their open accounts built up instead.  All their dollars went to paying as many bills as they could plus family living expenses.

Even though their income could not cover everything, they can’t deduct the expenses they incurred, but couldn't pay for, in those open accounts.  On paper, that can leave them with a positive net farm income (their family living expenses are not deductible) for which they could owe income taxes and self-employment taxes…and there isn't money to pay for them.

What about farms that were able to stay current on their accounts but will still have a loss this year?

• They will also need to be working with a good income tax practitioner.  When there is a net operating loss, there are some opportunities to either carry that loss back or forward to offset an income tax liability in a previous or future year.  Since 2007 was an excellent year for many dairy farm families, there may be an opportunity to carry a loss back which would generate an income tax refund.

What if a farm won’t generate a refund by carrying a loss back?

• If carrying this year’s net operating loss back will not generate an income tax refund, then the farm can elect to carry it forward for up to 20 years… in other words they could “save it” so to speak to use in a future good year.

How do you make these decisions?

• That is not an easy question!  You can’t simply say “I have a $50,000 net operating loss this year and I had a $50,000 net operating income 2 years ago, that would offset each other, so I’ll carry it back.”  There are deductions that were made when calculating the previous years’ tax liabilities that will have to be adjusted for a carryback decision.  This is probably one of the areas that we should say “this should be done by a professional!” 

Timeliness of this decision is also critical.  If the farm decides to carry this year’s loss forward, because it will not result in little or no tax refund to carry it back, them the election to forgo the carryback must be made on a timely filed tax return.

Where does a family find help with these issues?  It sounds like they will have to get on top of this as soon as possible!

• There are a couple routes to go here.  Even if a farm uses a tax professional to help them make good decisions and prepare their taxes, farm managers should also read up on the current issues to be aware of what needs to be managed.  Two good sources of information are the IRS’s Farmers Tax Guide, available at your local Extension office,  and Purdue Extension’s “2009 Income Tax Guide for Farmers” which can be downloaded at http://www.agecon.purdue.edu/extension/pubs/taxplan2009.pdf

Finding a tax practitioner that has a good working knowledge of agriculture who can help with tax planning options and decisions is also important.  Contact your local Extension Office for a list of practitioners who have participated in OSU’s Agriculture Issues Farm Income Tax Management Program.  Many of these professionals participate annually, keeping up on current agricultural issues and earning professional continuing education credits.  While we cannot endorse any person or persons in particular, if someone contacts our office, we can share that list of practitioners with them.  They will know that the practitioner has dedicated some time to agricultural taxes.

Announcements (top of page)

2009 Ohio Dairy Challenge Contest – Even Larger Than Last Year’s Contest (top of page) pdf file
Dr. Maurice Eastridge, Extension Dairy Specialist, The Ohio State University

The 2009 Ohio Dairy Challenge was held November 12-13 and was again sponsored by Cargill Animal Nutrition. The Dairy Challenge provides the opportunity for undergraduates at Ohio State University to experience the process of evaluating management practices on a dairy farm and to interact with representatives in the dairy industry. The program is held in a contest format whereby students are grouped into teams of three to four individuals, and the first and second place team members received gift certificates to the Barnes and Noble Bookstore, at $75 and $25 each, respectively. The farm selected for the contest this year was Harpercrest Dairy in Edison, OH (Morrow County), and it is owned by David and Beth Ertl and Stan and Cecelia Harper. Stan took over from his grandfather at the time when the herd was small and they milked in a flat stanchion. By 2004, the herd had expanded to 240 cows and this is when David began as the herdsman. The partnership was formed in 2009 between the Ertl and Harper families. The herd consists of about 550 cows of Jersey, Holstein, and Jersey-Holstein crosses. The parlor is a double-10 herringbone and cows are milked 3x per day. The contest started by the students and the judges spending about two hours at the farm on Thursday afternoon, interviewing the owners and examining the specific areas of the dairy facility.  During Thursday evening, the teams spent about four hours reviewing their notes and farm records to provide a summary of the strengths and opportunities of the operation in the format of a MS PowerPoint presentation that had to be turned in on Thursday evening. On Friday, the students then had 20 minutes to present their results and 10 minutes for questions from the judges. The judges were Mr. Fred Martsolf (Cargill Animal Nutrition), Mr. Paul Colley (Cargill Animal Nutrition), Dr. Maurice Eastridge (Professor, Department of Animal Sciences, OSU), and Dr. K. Larry Smith (Professor Emeritus, Department of Animal Sciences, OSU). There were 13 teams and 50 students that participated in the program, the largest participation ever. This surpassed last year’s record of 46 students. The awards banquet was held on Friday, November 13 at the Buckeye Hall of Fame Café. The students among the teams that competed were: Team #1(Honorable Mention) –Hannah Thompson, Laura Gordon, Matthew Borchers, and Kevin Jacque; Team #2 (Honorable Mention) – Karl Wedemeyer, Paul Keener, Neil Duncan, and Jason Miley; Team #3 – Linda Brahler, Jason Hartschuh, Kyle Brockman, and Rachel Foureman; Team #4 –Heather Moff, Ryan Langenkamp, Stephanie Neal, and Kelsey Holter; Team #5 – Melanie Green, Liz Brockson, Katie Cole, and Katherine Crist; Team #6 – Nathan Schulze, Chad Riethman, Derik Baumer, and Megan Buechner; Team #7 – Tony Borchers, Doug Beasancon, Andy Lefeld, and Gregg Homan; Team #8 (Honorable Mention) – Ryan Conklin, Andrea Tholen, Darrin Hulit, and Wendy Van der Burg; Team # 9 (ATI Team) – Francine Harris, Nathaniel Guy, and Ed Weisgarber; Team #10 (First Place) –Annie Eilenfeld, Bethany Stammen, Tyler Thompson, and Amanda Paulhamus; Team # 11 – James Reynolds, David Bowman, and Alex de Roziere; Team # 12 – Stephanie Adams, Hanna Lemle, Tim McCormick, and Justin Rawn; and Team # 13 (Second Place) –Teresa Smith, Catelyn Edgel, Kristin Hobble, and Alissa Hunter. The top 4 individuals for the contest that were selected to represent Ohio at the 2010 National Contest to be held April 9-10 in Visalia, CA were Annie Eilenfeld, Ryan Conklin, Heather Moff, and Amanda Paulhamus. Students from OSU will also be participating in the Midwest Regional Dairy Challenge hosted by The Ohio State University in the Wooster area February 11-13, 2010. The coach for the Dairy Challenge is Dr. Maurice Eastridge in the Department of Animal Sciences at Ohio State.

First Place Team (left to right): Bethany Stammen,
Amanda Paulhamus, Annie Eilenfeld, and Tyler Thompson.

Second Place Team (left to right): Teresa Smith,
Kristen Hobble, Catelyn Edgel, and Alissa Hunter.

Bonnie's "Buckeye Moos" Update (top of page) pdf file
Ms. Bonnie Ayars, Extension Dairy Program Specialist, Ohio State University Extension

As the end of the year approaches, I have spent time preparing a 2010 calendar for 4-H dairy activities.  It is posted on the www.4hansci.osu.edu web page.  There is also a current edition of my newsletter titled, “Bonnie’s Buckeye Moos.” 

I hope you will take some time to encourage youth to participate in local and state wide programs.  Once again, I am pleased to report that Ohio Dairy Productions Association (ODPA) and the American Dairy Association (ADA) Mideast will assist in sponsoring a program titled “Dairy COWreers.”  The workshop will be an opportunity to link the dairy industry and the next generation, while creating an awareness of all the many career possibilities! I will be calling on many of you for your expertise and assistance. This April 10th “career fair” will be held in the 4-H Center here on campus.   

Just this week, each participant in a state wide 4-H program, as well as every junior dairy exhibitor at the 2009 Ohio State Fair received a letter about dairy programs and the 2010 calendar. There were approximately 275 letters sent.  It is my hope that this “grass roots” campaign will encourage interest to more dairy youth from all areas of the State.

As far as the collegiate level of judging, 5 students and I will be attending the Ft. Worth Stock Show in January.  There is a dairy judging contest held there, and this is the first time OSU will be competing.  Bernie Heisner will also accompany us on the trip, which will include some dairy farm visits, tours of local areas of interest, and a collaboration with the University of Wisconsin’s judging team.

The ODPA has established a Dairy Care Standards committee.  I will be serving on this, and the first meeting was held December 15th. It was formed to begin the work of preparing a unified dairy industry approach that will be submitted for review of and the potential endorsement/certification by the Ohio Livestock Care Board.  If you would like more details, please contact me or Jenny Hubble at ODPA.

Calendar of Events (top of page)

January 18, 2010: Ohio Purebred Dairy Cattle Association Annual Meeting, Der Dutchman, Plain City

January 23, 2010: Ohio Jersey Breeders Association Annual Meeting, Der Dutchman, Plain City

February 20, 2010: Ohio Brown Swiss Association Annual Meeting, Der Dutchman, Plain City

February 27, 2010: Ohio Ayrshire Breeders Association Annual Meeting, Der Dutchman, Plain City

March 6, 2010: Ohio Guernsey Breeders Association Annual Meeting, All Occasions, Waldo

March 12-13, 2010: Ohio Holstein Association Annual Meeting, Berlin

Web links to Milk Marketing Information: Ohio Dairy Web - http://aede.osu.edu/programs/OhioDairy/; eDairy, Inc. - http://www.dairy.nu/