Figure 1. Projected Milk Income Loss Contract (MILC) Payment Stream FY-2012.
INSIDE THIS ISSUE
Market View.Dr. Cameron Thraen, State Extension Specialist, Dairy Markets and Policy, The Ohio State University
The costs of nutrients, comparison of feedstuffs prices and the current dairy situation. Dr. Normand St-Pierre, Dairy Extension Specialist, The Ohio State University
Recent Research Results on Cow Comfort and Behavior. Dr. Maurice Eastridge, Dairy Extension Specialist, The Ohio State University
OSU Dairy Judging Teams Update. Bonnie Ayars, Dairy Judging Teams Coach, The Ohio State University
Market View (top of page) pdf file
Dr. Cameron Thraen, State Extension Specialist, Dairy Market and Policy, The Ohio State University
With the price strength in the grain markets and milk prices showing a downward tilt, it appears very likely that the Milk Income Loss Contract (MILC) payment program will be in operation for all of fiscal year 2012. Using the current (9/21/2011) settle prices for the Chicago Mercantile Exchange (CME) Class 3 & 4 milk, and the Chicago Board of Trade (CBOT) settle prices for corn and soybeans, plus an educated guess on the alfalfa hay price, it appears that the MILC payment will average $0.87 this coming year. For a dairy farm just meeting the total shipping cap of 2.9 million pounds, this will result in an MILC total payment of $26,000 using projected prices at the time I am writing this for the Buckeye Dairy News. The current projected MILC payment profile, i.e., the payment by month is shown in the accompanying chart (this chart can be found on the Ohio Dairy Web website and is updated each week).
Figure 1. Projected Milk Income Loss Contract (MILC) Payment Stream FY-2012.
The following table shows the MILC as an income stream for a 125 cow dairy producing 65.7 lbs/cow/day, which makes total milk production 29,850 cwt, which is just under the maximum allowed. For dairy farms which exceed the allowable maximum, it will be profitable to plan the starting month for the MILC payment so as to take advantage of the higher payments beginning with February 2012.
As a reminder, the relevant document is CCC-580, available at the local Farm Services Agency (FSA) office. Be aware that if you selected an initial starting month for the prior fiscal year and you do not file a new CCC-580 form, that month initially selected will be the starting month for each fiscal year forward. It is best to contact your FSA agent and review your plans for the upcoming MILC year now.
Table 1. Projected Milk Income Loss Contract (MILC) Income Flow FY-2012.
If you like to work up your own projected MILC numbers using current futures prices, you can obtain a copy of the Microsoft Excel Workbook used to produce Table 1 at the Ohio Dairy Web 2011 website: (http://aede.ag.ohio-state.edu/programs/OhioDairy/MILC_Center/MILC_Center.htm)
Dairy Market Outlook for 2012:
The CME Class 3 milk price has been retreating somewhat from the highs reached in August and September, 2011. This is due to the modest softening of the cheese and butter markets. The accompanying two charts show the time path of the four main dairy component prices [upper panel for cheese, butter, nonfat dry milk (NDM), and whey] and the Federal Order prices for milk components (butterfat, protein, other solids, and nonfat solids) over the past 20 months. The prices are averages by week.
Clearly, dairy commodity prices, and therefore milk component prices, have improved significantly over this period. The Class 3 futures price for September, currently trading at $18.93, has retreated from its August 1 high of $20.80. Those using a pro-active price risk management plan have locked in an additional $1.5 to $2/cwt by hedging their September milk price back in July and August. The important question going forward is will these prices hold in 2012 or will we see a significant fall back?
Market Price Outlook:
The current CME futures prices for both Class 3 and Class 4 milk show an anticipated decline in price into 2012. The Class 3 futures price for the coming six months averages $17.68/cwt, for the following six months $16.95. The 12 month average is currently $17.32. The Class 4 price, now currently leading the Class 3 price, at $19.65, is expected to decline across 2012, dropping to the $15.00 to $15.50 range during the last half of 2012. Price weakness is developing in the international markets as the general macroeconomic woes of the Euro and the likelihood of a sovereign state default in the European Union grows each week. Such an event will push the global economy back into a recession. This is causing the outlook for continued growth in the U.S. dairy export market to appear less likely. Let us hope that the European Central Bank (ECB) can find a way out of their dilemma. From my reading, they are running out of time and that is not good news. The outlook for growth in the dairy product and milk demand at home is also not very bright at the current time. While the USDA is calling for a small increase in domestic use, it is not enough to take the downward pressure off milk prices in the coming months.
Policy Update:
The following information is provided by Dr. Andy Novakovic, Cornell University, currently serving as an advisor on dairy policy to the USDA Chief Economist in Washington, DC.
“Two developments have recently arisen that have considerable implications for the ongoing debate about new dairy policy.
First, the Board of Directors of the National Milk Producers Federation met just yesterday to approve a number of changes to their Foundation for the Future proposal. The earlier version of this proposal was the basis for a "discussion draft" of legislation circulated by Congressman Peterson (D-MN) in July. To accommodate budget goals, as best they were understood at the time, Mr. Peterson made several revisions to the previous FFTF proposal, a number of which that were not particularly agreeable to the developers and proponents of the original NMPF proposal. With Mr. Peterson's encouragement to discuss and consider feasible improvements to the draft, NMPF launched a nationwide tour of dairy country and also worked at home to see if they could offer revisions that would better satisfy their policy objectives, respond as best they could to suggestions made by dairy farmers, and conform to new budgetary constraints that were not foreseen earlier in the summer.
The result is the revisions that were adopted yesterday. The NMPF release is at their FFTF website:
(http://www.futurefordairy.com/resources/in-the-news/NMPF-Announcements.html)
It is likely that these modifications will be incorporated into a new version of the Peterson bill and that Mr. Peterson and co-sponsor Mike Simpson (R-ID) will formally introduce it very soon.
I will not detail the modifications here. The NMPF has prepared useful summary materials that describe their proposed changes. The gist of it is that the margin plan has been slightly modified with the intention of improving its usefulness to producers. The growth management plan has been altered in a couple of ways. Some are intended to make it more fair, especially to producers whose production has not grown since their base period. A very significant change was made to accommodate budget requirements. This one makes compliance with the growth management plan subject to voluntary election of the margin plan. Thus, if a producer chooses to not sign up for the margin plan, he would not be subject to penalties under the growth management plan, should they be triggered. The Federal Order revisions envisioned in FFTF were not changed in their scope, but the manner of their implementation was changed from being a legislative process to a modified regulatory process. Instead of a new law imposing very specific changes on all Federal Orders, the law would specify the general goal of changes but require USDA to conduct hearings to determine the specific form of those changes. In contrast to standard regulatory procedures, this proposal would also allow farmers to keep the current Federal Order structure should they choose to vote against the Recommended Order that would result from the new hearing.
The second significant development is contained in President Obama's proposed deficit reduction legislation. Many non-agricultural groups and members of Congress have proposed large cuts to expenditures on agricultural programs. Certain programs, especially direct payments to growers of so-called "program crops" (think corn and soybeans but also cotton and rice), were clear targets for cuts. However, farmers across the country have been drawing a line at crop insurance and arguing that those programs are critical and essential to the viability of American agriculture. The President's proposal includes large cuts across agricultural programs, including cuts to crop insurance subsidies that make these privately delivered plans more affordable. The implications of this are still developing. There is no question that Democrats and Republicans on both Agriculture Committees will protest and argue for cuts more commensurate with the average. There is nothing in this that is directed precisely at dairy programs, but this sets a more dire tone for the ability to fund any agricultural program and will no doubt have some implications for dairy policy choices in the coming months.”
Clearly, there is much going on regarding all Federal programs, and agricultural programs are not exempt. I believe that not much will really be known until after the ‘super committee of 12’ completes their deficit cutting task (or not) by the end of November. After that, we may have a somewhat clearer fix on the rules of the game. It has been my experience that in times such as these, we will not really know what is in store for dairy policy until the eleventh hour, or past.
Ohio Dairy Farm Economic Status:
After the very difficult production year of 2009, you may be asking yourself why U.S. cow numbers have expanded by 128,000 head and milk yields continue to go up? Take a look at the accompanying table for the answer. The table shows the economic status of the Ohio milk producers over the last nine years. In the table, you will find the Ohio mailbox price, i.e., the net milk check per hundredweight along with the cost of feed, other operating goods and services, and the overall operating cost. In the last three rows of the table, you will find the margins, that is, the mailbox price less the various costs associated with producing milk. The last column on the right shows the numbers for 2011. The USDA has stopped publishing state data for each month, and I have estimated the months for 2011.
Note that whichever of the margins you select, they are at record levels through July 2011. My projection for 2011 is that income from the sale of milk to Ohio dairy farms will be near if not top one billion dollars, with an estimated $556 million going to the feed industry, $242 million going to the non- feed goods and services, and a near record $248 million going to the balance sheet factors. By comparison, only $19 million was available to the balance sheet in 2009. In fact, 2011 is a far better year financially for Ohio dairy farms that was 2007, because in that year, a whopping 86% of milk income earned went to paying for operating costs (feed and nonfeed) as compared to an estimated 71% in 2011. Enjoy this as I do not expect 2012 to be as robust financially.
For up-to-date market and policy information on the Ohio dairy industry, as well as informative charts, research papers on many industry issues, and for useful links to other sites, please visit and bookmark my website:
http://aede.ag.ohio-state.edu/programs/OhioDairy/
The costs of nutrients, comparison of feedstuffs prices and the current dairy situation. (top of page) pdf file
Dr. Normand St-Pierre, Dairy Extension Specialist, The Ohio State University
From 1976 to 1977, the Tampa Bay Buccaneers lost 26 games in a row. Do you think that they ever got used to losing? Are we like the Buccaneers, slowly getting used to $7 corn? This is important, because if we are expected to keep producing plentiful milk with $7 corn, the market (and legislators) better get comfortable with $20 milk. On a national basis and with current feed prices, the break-even price in milk production is teetering $18/cwt. Add $2/cwt to generate a 6-7% return on assets, and bam! (as John Madden would say), one needs $20 for a sustainable dairy industry in this country. This is where we are now. To fully understand this, we have to examine the feed markets in September and look at how feed prices translated into nutrient prices.
Nutrient Prices
As usual in this column, I used the software SESAME™ that we developed at Ohio State to price the important nutrients in dairy rations to estimate break-even prices of all major commodities traded in Ohio and to identify feedstuffs that currently are significantly underpriced. Price estimates of net energy lactation (NEL, $/Mcal), metabolizable protein (MP, $/lb – MP is the sum of the digestible microbial protein and digestible rumen-undegradable protein of a feed), non-effective NDF (ne-NDF, $/lb), and effective NDF (e-NDF, $/lb) are reported in Table 1. Compared to its historical average of about 10¢/Mcal, NEL is now severely overpriced at 16.6¢/Mcal, although this figure is down from its peak of 17.4¢/Mcal in June. For MP, its current price (28.0¢/lb) is at its 6-year average (28¢/lb). Thus, we are currently in a period of very high dietary energy prices. This is even more evident when one is reminded that less than 10 years ago dietary energy (NEL) was priced at about 5¢/Mcal. Thus, the current dietary energy cost is substantially above its long-run average. The cost of ne-NDF is currently discounted by the markets (i.e., feeds with a significant content of non-effective NDF are price discounted), but the discount is at about its 6-year average (-9¢/lb). Meanwhile, unit costs of e-NDF are historically high, being priced at about 5¢/lb over the 6-year average (3.2¢/lb).
Table 1. Prices of dairy nutrients for Ohio dairy farms, mid-September 2011.
Forage Prices
In my July column (http://dairy.osu.edu/bdnews/Volume%2013%20Issue%203.html#Costs), I explained how the “market” price of corn silage is calculated on a yearly basis using the December futures for shelled corn in mid-September. On September 15, 2011, the December futures for corn traded at just about $7/bu. This means that on that day, the corn plant standing in the field had a “market” price of $7 x 7 = $49/ton at 35% dry matter. Adding harvesting, transportation, packing, and covering costs (~ $15/ton), the “market” cost for the corn plant in the silo, but before fermentation begins, was thus about $64/ton. If we add a 10% loss of dry matter during fermentation and storage – a very conservative figure - then this year’s corn silage will have a “market” value of $70/ton when the silage hits your mixer wagons. If you can grow corn for much less than $49/ton standing in the field, then good for you; your crop enterprise is profitable. But, your cows should really be paying $70/ton for the stuff coming out of the silo, or else your crops sales manager should be fired…
Economic Value of Feeds
Results of the Sesame analysis for central Ohio in mid September are presented in Table 2. Detailed results for all 27 feed commodities are reported. The lower and upper limits mark the 75% confidence range for the predicted (break-even) prices. Feeds in the “Appraisal Set” were deemed outliers (completely out of price range). One must remember that Sesame compares all commodities at one point in time, mid September in our case. Thus, the results do not imply that the bargain feeds are cheap on a historical basis.
Table 2. Actual, breakeven (predicted) and 75% confidence limits of 27 feed commodities used on Ohio dairy farms, mid-September 2011.
For convenience, Table 3 summarizes the economic classification of feeds according to their outcome in the Sesame analysis.
Table 3. Partitioning of feedstuffs, Ohio, mid-September 2011.
Bargains |
At Breakeven |
Overpriced |
Corn silage
|
Alfalfa hay – 44 NDF |
Blood meal |
As usual, I must remind the readers that these results do not mean that you can formulate a balanced diet using only feeds in the “bargains” column. Feeds in the “bargains” column offer savings opportunity, and their usage should be maximized within the limits of a properly balanced diet. In addition, prices within a commodity type can vary considerably because of quality differences, as well as non-nutritional value added by some suppliers in the form of nutritional services, blending, terms of credit, etc. Also, there are reasons that a feed might be a very good fit in your feeding program, while not appearing in the “bargains” column. For example, molasses is often used to reduce ingredient separation in a TMR. Molasses is also an excellent source of sugars. Some nutritionists balance rations for sugars. In those situations, molasses might in fact be a bargain.
Current Dairy Situation
We use the estimates of the nutrient costs to calculate the Cow-Jones Index (CJI), an index constructed here at Ohio State to measure the difference between milk revenues and the costs of providing the required nutrients at a production level of 65 lb/cow/day. The CJI is conceptually very similar to income-over-feed costs, but it is calculated without making reference to any specific diet. The reference cow used to calculate the Cow-Jones weighs 1500 lb and produces 65 lb of milk at 3.6% fat and 3.0% protein. This cow has daily requirements of 31.3 Mcal of NEL, 4.64 lb of MP, 10.15 lb of e-NDF, and 3.38 lb of ne-NDF. The cost of supplying these nutritional requirements has fluctuated in the last 6 years. Dietary energy is currently quite expensive, and it currently costs $5.20/day to provide the NEL required for the production of 65 lb/day (Figure 1). This means that, on an average, one has to pay $8.00 just to supply the NEL required to produce a cwt of milk.
Figure 1. Costs associated with the supply of 31.3 Mcal of NEL and 4.64 lb of MP per day from January 2005 through September 2011.
The change in the CJI over time is shown in Figure 2. We cannot calculate the CJI for September yet because the component prices will not be announced until early October. As of August 2011, the cost for supplying all the nutrients to our reference cow amounted to $11.40/cwt. The milk income was $21.94/cwt. The difference is the CJI and was equal to $10.53/cwt. The break-even level for the CJI is approximately $8.00/cwt. This figure includes all direct and indirect (overhead) costs. A CJI in excess of $9.00/cwt is indicative of good profitability in the dairy industry. In the month of August, Ohio dairy producers were operating at approximately $2.50/cwt above break-even levels. Of course, some people have contracted feed supplies that are less than the current cash prices. In those instances, credit the “purchasing manager” for his wisdom (or luck), not the cows-they don’t place any feed orders. The fact that the nutrient costs to feed the lactating herd in August amounted to over 52% of the milk revenues is very troublesome and foreshadows a very difficult financial environment if either: (a) the current feed prices are maintained throughout the fall cropping season, or (b) if milk prices were to fall from their current near record levels. At the time of this writing (September 27), the CME Class III milk futures for the balance of 2011 were averaging $17.78/cwt, which is $3.89/cwt less than the $21.67/cwt August Class III price. We might be heading for another “Tampa Bay Buccaneers” season…
Figure 2. Cow-Jones Index from January 2005 through August 2011. Although milk prices have been substantially above their 6-year average so far in 2011, the large increases in feed prices have “eaten” much of the additional gross revenues.
Recent Research Results on Cow Comfort and Behavior (top of page) pdf file
Dr. Maurice L. Eastridge, Extension Dairy Specialist, The Ohio State University
It is important to review the continuing research being conducted to improve the well-being and performance of dairy cattle. In the October 2011 issue of the Journal of Dairy Science (http://adsa.org ), there were several papers published that related to dairy cattle comfort and behavior. A brief summary of some of the papers is provided.
University of Nottingham; and University of Warwick, United Kingdom): Data were collected for 1 year on 1 farm using 312 cows. Milk yields of cows with a mobility score [MS; 0 (good) to 3 (severly impaired) scale] of 1 were greater than those of cows with other scores. Cows with a MS of 2 and 3 produced 1.5 and 3.5 lb/day less milk, respectively, compared with cows with a MS of 1. Cows with a MS of 2 and 3 were less active than cows with a MS of 1. Six to 8 wk before nonlame cows became a MS score of 2 or 3, their daily milk yield decreased by 1.1 and 2.0 lb/day, respectively. Milk yield remained lower by 0.9 lb/day for 4 wk after cows with MS 2 had recovered. The delayed lameness compared to the drop in milk yield and the increase in milk yield that occurred about 4 wk after a cow returned to a MS of 0 or 1 suggests that mobility scoring is insufficiently sensitive to detect lameness, that cattle mask lameness despite being diseased, or that lameness and reduction in yield are linked by a common intrinsic event. Once lame, cows were likely to remain lame or become lame again. Personal comments: Lameness continues to be the most costly disease affecting the well-being and performance of dairy cattle. Continued efforts to reduce the risks for lameness are very important.
OSU Dairy Judging Team Update (top of page) pdf file
Bonnie Ayars, Dairy Judging Teams Coach, The Ohio State University
The 2011 Dairy Judging Season is in full swing. After out “boot camp” trip to the Maryland State Fair, we designated teams for 2011. They are as follows:
OSU Scarlet Team Judging at Eastern States and PA All American
Matthew Borchers
Derik Baumer
Rachel Foureman
Dan Nicol
The above team placed third at Eastern States. Matthew was second high individual, and Dan was in 4th place but earned the 2nd place ribbon for his reasons. The team was second high in the Holstein breed and won the Brown Swiss breed. At Pennsylvania, Rachel was 9th high individual, and Derik and Dan were in top 25 as well. Overall, we were 7th out of 15 teams.
Scarlet Team Judging at World Dairy Expo, Madison
Matthew Borchers
Derik Baumer
Sabrina Eick
Rachel Foureman
This one is the biggie, so wish us luck!
Grey Team Judging at Accelerated Contest (WI) and North American in Louisville, KY
Jeneva Auble
Marc Bolen
Sabrina Eick
Patrick Twining
At the Accelerated Contest, the above team was 4th high. Patrick led the team in total points. As a group, they were 2nd in Milking Shorthorn and 4th in Holstein.
4-H Team Judging at PA All American and World Dairy Expo
Eileen Gress
Dan Grim
Lara Staples
Rachel Townsley
In Pennsylvania, the team was 5th in reasons and Lara was 3rd high individual with her reasons. Dan and Lara were listed in top 20 individuals.
4-H Team Judging at North American in Louisville, KY
Laura Bond
Tyler Schonauer
Meghan Thurston
Emily Dudash
Our program could not remain progressive without the input of VVV’s…very valuable volunteers. They include Julie Delavergne, Bernie Heisner, Kelly Epperly, and John Ayars. Many thanks to all of these people who share valuable time with our aspiring judges.
At Farm Science Review, we unveiled our new standup poster promoting Ohio 4-H Dairy Programs. Meghan Buechner , Agricultural Communication major and valued Buckeye Dairy Club Member, completed the design. If you did not see this, look for it in the future. It might even make an appearance at World Dairy Expo!
Anytime you would like updates on dairy youth programs and activities, you can easily find us on Facebook at Ohio 4-H Dairy Programs or at www.4hansci.osu.edu.