Inside this Issue
If you really want to better yourself as a dairy farm manager, this is the season to do it. There is a large number of classes, workshops and industry sponsored meetings to be held in Ohio during the next three months. Issues and topics to be addressed at these events range from advanced dairy nutrition to farm strategic planning, pesticide certification and labor management. Other meetings will address the issue of restructuring the Ohio dairy industry. Select two or three of these activities for you, your partners and even your employees to attend. As you complete each one, write down the three things that you intend to change on your farm or in the way that you will manage it during 1998. Then, post this short list on the wall for others to see and to remind you that, at least once this year, you had a couple good ideas!
Buckeye Dairy News will try to help you with your dairy enterprise. Each month, we will have a special “pull-out” section on a special topic. Last month, this section dealt with free stalls. This month, we invited Dr. Gary Schnitkey, our economic astrologer, to forecast the long range price of milk. Next month, we will have a full four page section on managing reproduction. Because all of this gets to be a bit stressful at times, we asked two of our dynamic Extension county agents to teach us about stress management in this issue. You will also find our regular columns on markets and management tips.
So take a breather, sit down, relax for a minute and enjoy!
Normand St-Pierre
Dairy Extension Specialist, Editor
Many dairy farmers across Ohio have been experiencing elevated stress levels for the past several months as a result of lower than expected milk prices, crop and weather concerns, and uncertainty about the future. What can be done about this? The following paragraphs will help you understand what stress is and some tips you can use to better manage it.
What is stress? It's a part of life. To a certain degree stress is positive because it keeps you active and productive in meeting the goals of your farm business. However, too much stress can have a negative impact on you, your family, your employees, and the long-term success of your business. In addition to the stresses that nonfarm individuals and families face, farm families face additional stresses. These include: weather, variable crop and livestock prices, large debt loads, long work hours, and equipment repairs. These and other factors combine to make agriculture one of the top 10 most stressful occupations in the United States. In fact, a recent study by the National Institute for Occupational Health and Safety examined 130 occupations and found that laborers and farm owners had the highest rate of deaths due to stress related conditions like heart and artery disease, hypertension, and ulcers.
What are the signs of stress? Signs and symptoms can be divided into several categories including physical, emotional, and behavioral. Common symptoms in these categories include headaches, rising blood pressure, frustration, depression, low self-esteem, difficulty sleeping, and verbal or physical abuse.
How can you manage the stress of farm life? There are several things you can do to help manage the day-to-day stresses. We realize sometimes these are easier said than done, but select one or two and commit to using them. Below are some examples:
Consult the following references for additional information:
15- Measures of CompetitivenessDianne Shoemaker, Agriculture AgentThis Month: Cost Control: Operating Expense Ratio Competitive Level: Less than 70% Calculation: (Total cash operating expenses - farm interest expense) Example: $700,000 cash operating expenses 0.67 - 100,000 interest x 100 = $600,000 total operating expenses 67% operating expense ratio / 900,000 gross farm income = 0.67 Bookkeeping for 1997 is complete, and now is a good time to look at your operating expense ratio. This ratio shows you the percent of gross farm income that is used for operating expenses. Expenses other than interest should be less than 70% of gross farm income. The remainder is available for family living, debt service, improvements, investments and savings. Gross farm income can be taken from Form 1040, Schedule
F (excluding depreciation). It should be adjusted for:
Low expenses are great if production and income don't suffer. If expenses are low and the business is cash flowing and producing satisfactory family living, great! Otherwise, the business may be too small to generate sufficient income or debt may be too high. A high ratio indicates low income, high expenses, or both.
The largest single expense on most dairy farms is purchased feed, so check
out this item first. Make sure that this cost per cwt. of milk is
reasonable. Have all expenses been reported in the correct year?
Other ratios to check to help discover the reason for high expenses: asset
turnover ratio, milk sold per worker, and farm investment per cow.
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The long run milk price is an estimate of the average price that dairy farmers will receive over the next five years. Dairy farmers need to have a realistic estimate of the long run price for long-range financial planning. Using too high of a price estimate could cause investments to be made that should not be made. Using too low of an estimate may cause farmers to forgo profitable opportunities.
Dairy farmers also are beginning to be offered new milk procurement contracts that specify minimum prices. For example, a contract may specify a minimum price of $13.00 per cwt., with higher milk prices possible during times when supply and demand are tight. Whether or not this contract is advisable depends on the long run milk price. The $13 minimum price contract may look good for a farm with a $12.80 long run price and not so good for a farm with a $13.50 long run price.
Long Run Outlook for Milk Prices
Between 1988 and 1997 the Basic Formula Price (BFP), the mover of milk
prices in the United States, has been variable, hitting a low of $10.02
per cwt. in March 1991 and a high of $15.37 per cwt. in September 1996.
Pay prices farmers receive for milk have exhibited similar variability.
While milk prices have been variable, they have not trended up or down. Over the last ten years the BFP has averaged $11.90 per cwt. When the BFP gets above $11.90, milk supplies increase and milk product demands decrease, causing the BFP to tend to move down to $11.90. Similarly, when prices are below $11.90, milk supplies decrease and milk product demands increase, causing the BFP to tend to move up to $11.90.
During the past 10 years, market forces have largely determined milk prices. There is little reason to believe market forces causing stable but variable prices during the past 10 years will change during the next 5 years. Hence, the BFP likely will average $11.90 over the next five years.
Estimating a Farm’s Long Run Price
Saying that the BFP will average $11.90 per cwt. over the next 5 years
does not identify pay prices farmers will receive for milk. On average,
Ohio farmers selling grade A milk receive about $1.00 per cwt. more for
their milk than the BFP. However, pay prices vary by over more than
$1.00 per cwt. from farm to farm because milk composition (e.g., protein
and fat content) and procurement arrangements vary from farm to farm.
A method for calculating a farm’s long run price is to first calculate the monthly basis, or difference, between the pay price and the BFP. For example, the basis for November 1997 milk is $1.01 per cwt. if a dairy farmer received a $13.97 pay price:
Basis for November 1997:
Pay price in November = $13.97 per cwt.
- BFP in November =
$12.96 per cwt.
= November 1997 basis = $1.01 per cwt.
Monthly bases should be calculated for at least a year and then averaged to determine the average basis for a year. The average basis for a year tends to be stable from year to year unless milk composition changes dramatically or milk procurement contracts change.
Because the average basis tends to be stable from year to year, an estimate of the long run milk price can be found by adding the average basis to the $11.90 per cwt. average BFP. If the average basis is $1.09, the long run price is $12.99 per cwt. ($1.09 average basis plus $11.90 average BFP).
Using the Long Run Price
Monthly pay prices will vary from the long run price. However,
the average of all pay prices over the next five years likely will be close
to the long run price.
The long run price can be used in financial projections of a farm’s income and cash flow. Using the long run price will give an indication of a farm’s average profitability and cash flow over the next five years.
However, prices lower than the long run price also should be used in projections. There will be periods in which pay prices will be considerably below the long run price. Historical data suggests that monthly pay prices will be $1.50 per cwt. below the long run price 10 percent of the time, or 1 in 10 months. A farm should be able to withstand these lower prices.
The long run price can be used to assess the advisability of entering different procurement contracts. Projected prices under a contract can be compared to the long run price to see if the contract raises or lowers prices likely to be received on the farm.
Tuesday, February 24
New Bremen, American Legion Hall
Sugarcreek, Dutch Valley Restaurant
Wednesday, February 25
Marion, Gateway Smorgasboard
Lancaster, Fairfield Co. Extension Office
Thursday, February 26
Napoleon, Paramount Inn
Wilmington, Stacey’s Restaurant
Middlefield, Grandview Inn
Friday, February 27
Smithville, The Barn Restaurant
N. Georgetown, American Legion Hall
Please make your reservation by calling COBA/Select Sires at (800) 837-2621.
Presenters will include Normand St-Pierre, The Ohio State University; Stuart Johnson, Ohio DHI (Dairy Herd Improvement); and Dr. Ivan Mao, Michigan State University. Each presenter will discuss critical success factors for dairies and specific strategies to increase profitability in a competitive dairy industry.
Meetings will be held at five Ohio locations:
Monday, January 26
Smithville, The Barn Restaurant
Tuesday, January 27
Sugar Creek, Dutch Valley Restaurant
Wednesday, January 28
Delaware, The Delaware Hotel
Thursday, January 29
Wapakoneta, Holiday Inn
Friday, January 30
Tiffin, T.J. Willie’s
Questions regarding the meetings may be directed to the NOBA/CRI office in Tiffin, at 419/447-6622.
Calendar of Events1/14,28, & 2/11/98St. Henry Managing for Future For more information call 419-586-2179 1/20/98
1/23/98
2/5,12,19/98
2/16-17/98
2/17,19,24 & 26/98
2/18, 3/3 & 3/18/98
2/20, 2/27 & 3/6/98
2/26, 3/5 & 3/12/98
3/4/98
3/5,12,19/98
3/6/98
3/18/98
3/19/98
3/24-26/98
4/15&16/98
4/21&22/98
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Hay Auction Prices (January 1, 1998)Location First Second Third Large Round/baleDamascus (/bale) $1.60 - 3.25 $1.70 - 3.75 $3.25 - 4.50 Ashland County (/ton) $105 - 155 $110 - 162.50 $135 - 177.5 $19.00 - 37.00 Farmerstown (/ton) No Prices Reported Mt. Hope (/ton) No Prices Reported |
How much does it cost to raise a heifer? I was asked this question by a New York producer in the fall of 1996. The literature that I found on the subject reported figures ranging from $850 to $1500 per heifer. The producer was convinced that he could do it for less than $1000. After all, he was dairying in an area where land would sell consistently for under $900 per acre, so his feed costs should be relatively small. To find out the answer to the cost question, we set out a detailed accounting of all expenses related to the heifer enterprise for the year 1997. We just finished accumulating and summarizing the results. To the surprise of most, it did cost this producer $1,321.87 to grow his heifers from birth to first freshening (23.4 months). The same producer could have his heifers contract raised for $1.60/day, or $1043.20/heifer from weaning to freshening. Add $90/heifer to cover the period from birth to weaning (assumed at 42 days with the heifers ready for shipment at 60 days) and his total cost would be $1,133.20/heifer, or a saving of $188.67/heifer. Considering the fact that he freshens close to 200 heifers per year, the producer could save over $37,000/year by out-sourcing his heifer enterprise. He could also add milking cows because he would now have more land for cow manure as opposed to heifer manure. This would also leave more crops for the additional cows. And these additional cows would themselves generate additional revenues. This is almost as good as winning the state lottery!
The 1996 OSU Dairy Heifer Production Budget estimates the cost of raising a heifer at $1,475. I wonder how many Ohio dairy enterprises can do it for this amount. Better yet, how many Ohio dairy enterprises even have a clue! It is time to push the pencil. Call your county agricultural agent if you need help.
Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture, Keith L. Smith, Director, The Ohio State University Extension