February 1999
Volume 2, Issue 1

Inside this Issue
Planning: A Vital Function of Management
Y2K: It is a Business Problem.  Are You Ready?

Planning: A Vital Function of Management
Normand St-Pierre, Dairy Extension Specialist

For most dairy producers, this is a slower time of the year.  With a bit of free time in  your hands, you should manage to make room for planning.  We know that you don’t like sitting behind a desk to scribble numbers on a piece of paper.  “That’s a female job” I was once told.  But this “female job” is a vital component of management.

First, you must do some short-term planning.  What meetings will you attend in the next 2-3 months.  Getting a free hat should not be an important criterion to your selection of meetings!  In this issue of Buckeye Dairy News, we suggest a few meetings/conference/workshops that you, your spouse or employees should consider attending.

Second, the “tax season” should provide you with an incentive for long-range planning.  In Northeast Ohio, Dairy Excel is offering four workshops titled “Positioning Your Dairy”.  Participants will learn how to prepare long-range plans and what factors should be considered in the process.  If you have an interest in the workshop but do not reside close to any of the four locations, call your county Ag. Extension agent.  We’ll see how we can accommodate your needs.

Why should you waste your time planning for the future if the world is coming to an end?  The issue of Y2K is getting more and more attention by the news media.  Some even predict an end to human life as we know it! What are facts and what is fiction? What should you do?  To help you manage Y2K in your herd, we are reprinting an article written by Dr. Roger Cady from Washington State University that explains the problem, how it will affect you and how you should manage the “crisis”.  Sit down, relax and enjoy (then start planning)!

Y2K: It is a Business Problem.  Are You Ready?
Roger Cady, WSU-Puyallup

Y2K.  It sounds like a first-aid cream.  Sometimes known as the Millenium Bug, Y2K is a technical computer problem, with enormous implications for every business that expects to survive into the next century!  Headlines, sensationalist TV stories, and doomsayers with stories of people moving to protected compounds to prepare for the havoc that will occur because of Y2K are appearing with increasing frequency.  While the “Chicken Little” approach is probably uncalled for, the “Ostrich in the Sand”  approach is just as foolhardy.  Undoubtedly, everyone will experience some inconvenience due to Y2K.  The question is how well prepared will you and your business be to survive the inconvenience.

Y2K is short for “Year 2000”.  It refers to the problem that will occur when calendars change from 11:59 p.m. 12/31/99 to 12:00:01, 1/1/2000.  The problem is caused because computer chips and software traditionally have used only two digits, instead of four, to refer to the year.  In 1970, one megabyte of memory cost $600,000 to manufacture.  Therefore, conservation of space was a t a premium and it was much more efficient to record only the last 2 digits of the year.  The trouble is, too many of these programs and hardware have outlived their expected lifespan, and the people who developed them have gone on to other things or died, or the business that created them no longer exists.  There are still no standards, there is little documentation, and no one and no organization is in charge of making things right.  Y2K is a problem that will occur, will  not be
delayed, but will pass.  The responsibility for being prepared and resultant consequences rests solely on the business and farm owner.

Why is this a business problem?  Your business will not only be affected by the computers and processors on your farm, but also by the computers and processors used by all your suppliers and all those you sell your products and services to.  If your “upstream suppliers” and “downstream customers” are not prepared, you will be affected.  Let’s examine why this little bug is so insidious.

Many people with only passing awareness of the problem assume it is only their desktop computer that will be affected.  True, your desktop and the software it runs is suspect.  But, they are pretty easily fixed by replacing a chip, replacing the computer, or updating the software.  What is not so easily fixed or assessed are all the microchips that are embedded in many of the appliances and machines that we take for granted.  The very first use of microchips in the early seventies, besides small calculators, were those used to run digital watches.  It only takes a very small portion of a chip to install a clock, so virtually all microchips are manufactured with a clock, even though the clock may have no purpose.  The problem is, what happens when the clocks in these chips turn over to January 1, 2000?

It is estimated that there are 25 billion chips installed in all kinds of equipment.  Of these, only a relatively small 2% to 5% are expected to fail at the Millenium.  But 2% of 25 billion is still 500 million  chips that will fail.  They could be in your vehicle, your gas pump, the electric company’s grid controller, the load cell on your mixer wagon, or the weigh meter in the milking parlor.

Another little realized issue is that January 1, 2000, is not the only date of concern.  Depending on an organization’s fiscal year, the problem may start as early as April 1, 1999, or whenever their 2000 fiscal year will start.  Another critical date will be August 22, 1999.  This is the date that clocks on 17 orbiting geopositioning satellites will roll over.  The chips on these satellites were programmed to count 1024 weeks.  They were launched in the 1970’s and the 1025th week starts on August 22.  The reason this rollover is critical is that, in addition to geopositioning, these satellites are also used to relay information from the atomic clock in Bethesda, MD, to automatically reset clocks throughout the U.S. on a daily basis.  You may own a watch with this feature.  Still another date of concern is September 9, 1999.  This date is recorded in a computer as 9/9/99 – four 9’s.  A common convention in Fortran programming was to use four 9’s to denote an error condition, which then shuts down the program.  Another problem date is February 29, 2000.  According to calendar rules for leap year, century years are not normally leap years, even though they are years divisible by 4.  Only those centuries with the first two digits evenly divisible by 4 are leap years.  So, while 1900 was not a leap year, and 2100 will not be a leap year, 2000 is a leap year.  Some programs have been distributed that have not taken this into account, including Windows NT (although a patch is available for Windows NT).

So what do you do?  There are three steps to becoming Y2K compliant: assessment, repair, and contingency plans.  The most time-consuming and expensive of these steps is the assessment phase.  Identifying, finding and testing all the chips and software in which Y2K may occur are tedious, time consuming, and difficult.  Furthermore, to do a full assessment also means understanding which of your suppliers and buyers are also Y2K compliant.  For instance, if your power company is not Y2K compliant,  you will be directly affected if the power goes down.  To determine who of your suppliers and buyers are compliant, you need to ask.  In addition to knowing whether they are compliant, you also need to know what their contingency plans are to serve you if they are not able to become compliant.

You may not be capable or able to afford to assess and become completely compliant on your own farm.  But, there are certain items you can assume are not compliant.  That means any 286 or older model will not be able to handle the year 2000.  If the accounting program you are using is more than 5 years old, it may very well not be compliant.  If you have a tractor, truck, or car built prior to 1995 and it has a computer, there is a remote chance that it will not start.  Critical areas to check are items like the milk weighing systems in the milking parlor, load cells on the mixer wagon, computer feeders, production recording systems, including DHIA, and your accounting package.

Of those industries on which we depend for life and livelihood, the banking system is now about 97% compliant, meaning that your money is safe.  Large companies like insurance companies, manufacturing, communications, and power companies are well along the road to being compliant.  Those at most risk are health providers, government, and small to medium businesses.  So, while those who receive electric power from large power companies are most likely to not lose power, there are a large number of small power cooperatives that may not be compliant, and there is some probability that power will go out for customers of some of these suppliers.

In other words, you need to be prepared for some inconvenience.  Make sure that your cows’ feed delivery system has a manual backup.  Make sure the generator to run your parlor works and can be started manually.  Make sure all of your vehicles are fully fueled on December 31, 1999.  Create backups of all your critical computer files.  Be prepared to subsist  for 3 to 5 days without power and other services.

The U.S. government estimates that Y2K will be the last straw for 5,000 small businesses, causing them to go out of business. To compare, the recent UPS strike caused 300 businesses to go bankrupt.  To avoid becoming one of these statistics, it will be necessary to be prepared.  To help, the Internet is full of sites offering suggestions and diagnostic tools to help assess your vulnerability.  Insist that your suppliers help you determine if their products will cause you problems.  There will be more on this topic at the Northwest Dairy Management Shortcourse, January 22 and 23 at Semiahmoo Resort, in Blaine, WA.?

Milk Price Outlook
Cameron Thraen, Dairy Economist
thraen.1@osu.edu

Milk Prices/Incomes High in 1998, Expect Declines but not Disaster in 1999.
January 28, 1999
Expected stronger growth in milk production and softening of commercial demand to push milk prices back to near normal levels.

Milk prices and cash income favorable in 1998
The 1998 dairy economy turned out to be very favorable for farmers. What appeared to be a lackluster year during the first five months has turned out to be a new record year for producers.  The Basic Formula Price (BFP), which determines all other milk prices, started out in January of 1998 at $13.25. This was higher than the previous three years, but by May the BFP had retreated to $10.88 which was more inline with May of 1997 price.  By December the BFP had advanced steadily to $17.34 and has set a record high for the year average at $14.20.  This is $2.15 more than the $12.05 average for 1997. Based on these high milk prices, cash receipts from the sale of milk, are at record levels in 1998.  Income from the sale of milk off the farm is running far ahead of 1997 and for the period January through September, is 11.9 percent higher than the same period in 1997.

Expect strong production growth and weaken milk check prices
The overall picture for milk production suggests strong growth in 1999.  With low feed prices, low concentrate prices, low cull cow prices and a very favorable September milk-feed price ratio of 3.94, milk cow numbers are holding strong at this time.  For the National Agricultural Statistical Service 20 reporting states, December cow numbers were up 14,000 head over January 1998. With these favorable milk price, feed prices, and weather conditions, milk production is expected to return to near normal rates of growth at 2% - 2.5% in 1999.

The expected growth in milk production will likely move milk prices and cash receipts back to levels similar to those experienced in 1995 and 1997.  Commercial demand can be expected to grow by 1.5% in 1999.  With demand projected to increase at about 1.5% in 1999 and milk production projected to expand at the brisk clip of 2.3 to 2.5%, the BFP is expected to retreat back to the $11.75-$13 dollar range.  The average for 1999 should be close to the average of 1995/97 at $12.50  to $12.75 per cwt.

When all said and done, dairy producers need to keep in mind that the BFP is projected to stay above the 5 year average for all months of the year in 1999, and while not the high of 1998, this will give dairy farmers the third highest average milk price on record!

BFP Forecast for January 1999
The BFP for January will be released on Friday, February 5.  At this time we can only forecast the BFP.  To do this we need to know four items: (1) the Minnesota / Wisconsin base month price for December, 1998; (2) the Minnesota / Wisconsin average milkfat test; (3) the price of 1/10 pound of butterfat; (4) the December to January change in the average price of cheddar cheese #40 blocks as reported by the National Agricultural Statistical Service.  As none of these items are publicly available prior to the February 5 release date, we out here in the industry can only "guestimate" what these figures may be and then forecast the announced BFP.

Here are my "guestimates":
Minnesota / Wisconsin Base Month Price: To know this we must guess at what grade B cheese plants reported they paid producers for milk during December 1998.  My guess is that they will report that they paid somewhere in the $17.00 - $17.50 range for 3.5% milk.  Remember, that although everyone is now focused on the decline in the cheese price, the Wisconsin Assembly Point average price was at its peak in December '98 at $1.9245.

Change in the Average Price of Cheddar Cheese: This number is the difference between the average price for December '98 and January '98 as reported by NASS.  Keep in mind that this price is NOT the average price reported on the Chicago Mercantile Exchange.  While the CME price has declined dramatically the survey price reported by NASS has not followed along.  For the week ending January 22nd, the CME average price was $1.28 and the NASS survey price was reported at $1.8177.  This is a $0.5377 difference.  What this means is that the decline in the price of cheese as reflected on the CME market will not show up until the NASS prices influence the February BFP calculation.

January 1999 BFP Forecast: I expect the announced BFP to be in the $16.30 to $16.50 range.  Looking at the BFP futures contract price trading on January 28th of $15.70 I think that the market is focusing on the CME cheese prices and not the NASS cheese prices.  This price of $15.70 is TOO low and I forecast that the BFP futures contract will increase over the next week to reflect the reality of a high Base month price in December and higher NASS cheese prices and not CME cheese prices.

Calendar of Events

Dairy Farming Strategies for the Future (A Three Program Series) 
“Milking Herd – Ways to Improve Profit”
February 11, 1999
10:30 am – 2:30 pm
Osgood American Legion, 228 N. North St., Osgood, Ohio.
This program will focus on utilizing facilities and economics to improve herd profitability.

“Raising Heifers for a Profit”
February 25, 1999
10:30 am – 2:30 pm
Osgood American Legion, 228 N. North St., Osgood, Ohio
Discussions will include topics such as contract heifer raising, developing partnerships, health and biosecurity, and raising heifers for a profit.

“Profitable Cropping Options in Dairy”
March 11, 1999 10:30 am – 2:30 pm
Osgood American Legion, 228 N. North St., Osgood, Ohio State
This program will highlight aspects of cropping, including custom hiring, cropping costs, using alternative feeds, and purchasing machinery.

**Pre-registration is required for each program**  For more information, contact: Joe Beiler at 419/586-2179.

Great Lakes International Grazing Conference
February 15 & 16,  1999
Fisher Auditorium, The Ohio Agricultural Research and Development Center (OARDC), Wooster, Ohio State This conference will discuss topics on grazing practices for various species with concurrent sessions in dairy, beef, sheep, and swine.  Highlights of the conference include international speakers from Ireland and New Zealand as well as discussions on intensive grazing, system design, and soil fertility.

**Pre-registration is required**
Contact (330) 264-3911, ext. 1220 for more information or visit the Great Lakes International Grazing Conference Web site at:
www.msue.msu.edu/jackson/GLGC.htm.

Northeast Ohio Dairy Management Conference
March 3, 1999 10:00 am – 3:00 pm
Sheraton Inn Canton, Beldon Village, 4375 Metro Circle NW Canton, Ohio
The conference offers dairy producers the opportunity to hear nationally recognized speakers on topics that impact the profitability of dairy operations. Some of the topics to be addressed include capitalizing on your milking parlor and heat stress management.

**Space for this conference is limited – pre-registration is required**
Call 330/424-7291 for more information