December 1999
Volume 2, Issue 9

INSIDE THIS ISSUE

And the Winner of the 2005 Darwin Award Is..., N. St-Pierre
1999 will be a Record Income Year Despite $9.79 BFP!, C. S. Thraen
1999 Tri-State Dairy Management Conference - A Success

Summary
 
The Darwin Awards go annually to people who have shown incredible, stupid behavior and an apparent
complete disregard for basic common sense.  The human species is better served by having their genes
removed from the gene pool.  At times, the dairy industry in the Tri-State area shows behavior worthy of a
Darwin Award.  The area is blessed with an unmatched array of natural resources and is located strategically
next to large, growing dairy markets.  Despite these natural blessings, the area has progressively lost market
share of the growing national milk supply.  To remain a long-term, viable and competitive dairy region, our
industry must address issues of structure, economic impact, animal waste, research, and leadership.
 

Have you ever heard of the Darwin Awards?  For those who have not, these awards are given to those who,
out of their own stupidity, are improving the human species by removing their genes from the gene pool.
Some of the nominees for 1999 include the following.
 
Nominee No. 1, from the San Jose Mercury News: An unidentified man, using a shotgun like a club to
break a former girlfriend's windshield, accidentally shot himself to death when the gun discharged, blowing
a hole in his chest.
 
Nominee No. 2, from the Kalamazoo Gazette: James Burns, 34, a mechanic from Alamo, Michigan, was
killed as he was trying to repair what police described as a "farm-type truck".  Burns got a friend to drive the
truck down the highway while Burns hung underneath so that he could ascertain the source of the troubling
noise.  Burns' clothes caught on something, however, and the other man found Burns "wrapped around the
drive shaft".
 
Nominee No. 3, from the Hickory Daily Record: Ken Charles Barger, 47, accidentally shot himself to death
in Newton, NC.  Awakening to the sound of a ringing telephone beside his bed, he reached for the phone,
but grabbed instead a Smith & Wesson 0.38 Special, which discharged when he drew it to his ear.
 
Nominee No. 4, from the Indianapolis Star: Sheriff investigators said that Gregory David Pryor died in his
parent's rural Dunkirk home while cleaning a 54-caliber muzzle loader that had not been firing properly.
The gunpowder ignited and the weapon discharged in his face when he used a cigarette lighter to look into
the barrel.
 
Nominee No. 5, from the Arkansas Democrat Gazette: Two local men were injured seriously when their
pick-up truck left the road and struck a tree near Cotton Patch on State Highway 38.  Thurston Poole and
Billy Ray Wallis were returning home after a frog-gigging trip.  Poole's pick-up truck headlights
malfunctioned due to a burned out headlight fuse.  A replacement fuse was not available, but Wallis
noticed that a 0.22 caliber bullet from his pistol fit perfectly into the fuse box located next to the steering
wheel column.  Upon inserting the bullet, the headlights began to operate and the two men proceeded
eastbound toward White River Bridge.  After traveling approximately 20 miles and just before crossing the
river, the bullet apparently overheated, discharged and struck Poole in the right testicle.  The vehicle
swerved sharply to the right and struck a tree.  Poole suffered only minor cuts and abrasions from the
accident, but will require surgery to repair the wound.  Wallis sustained a broken clavicle.  Upon being
notified of the wreck, Poole's wife Lavinia asked how many frogs the boys had caught, and whether anyone had gotten them from the truck.
 
What is the connection between the Darwin Awards and the Tri-State Dairy Industry?  As you read the list
of nominees for 1999, you must have realized that in all instances the nominees ended up on the list because
they failed to realize in time the potential negative impact of their actions.  As you read through, surely you
must have thought "how can someone be so stupid?"  Well, as I look at the behavior of our industry in
Indiana, Michigan and Ohio, I am sometimes very worried that we are positioning ourselves to receive a
Darwin Award in 5 or 10 years from now.
 
From a natural resource standpoint, the Tri-State Area possesses the critical elements to foster a dynamic
dairy industry.  The climate is near ideal to dairy production.  Crop production is extensive and the
availability of good quality feedstuffs rarely is questioned.  In all three states, the dairy infrastructure ranges
from adequate to extensive.  Land Grant Universities and other colleges offer a wide range of programs to
address the needs of the industry.  The combined milk production in all three states, estimated at 12 billion
pounds in 1998, meets only 80% of the 15 billion pounds of the total milk demand of its growing
population.  The dairy processing sector is extensive and easily could handle substantially more milk.  South
and east of us is a region experiencing a constant milk production decline combined with a steady increase
in population.  Currently, the Southeast must import over 3 billion pounds of milk per year just to supply its
demand for fluid milk.  This deficit in fluid milk is projected to keep increasing for years to come.  Our
states are strategically located to capture this growing market.  However, we have failed to grow our
industry to even follow the national pace of growth in demand for dairy products.  In 1970, Indiana,
Michigan and Ohio produced 11.4 billion pounds of milk altogether, or 9.7% of the total national milk
supply.  In 1996, the same three states produced 11.9 billion pounds of milk, or 7.8% of the national
production.  I don't know of any business that can continuously loose market share and expect to remain
viable in the long-term.  Our industry is sometimes hopelessly divided on issues that shouldn't be issues in
the first place.  Many, if not most, are content with myopic solutions equivalent to using 0.22 caliber bullets
as fuse replacements because "they work", that is, they keep the headlights on......  Until.........
 
To avoid receiving a Darwin Award, the Tri-State Dairy Industry must address problems in five areas.
 
1. Structural issues.  The terms "mega" farms and "factory" farms are often used to describe larger dairy
operations.  The total farm assets of a 1000-cow "mega" farm are generally in the $5 to 6 million range,
or about the size of a medium-sized grocery store.  Its annual gross sales amount to $3 to 4 million, or
about the same as a modern gasoline station.  Whereas new grocery stores often receive tax abatements
for their construction, and whereas modern gasoline stations are welcome along our highways, the
construction of a 1000-cow dairy is often perceived as a danger to the community and an unwelcome
addition to our industry.  Opposition claims that they are a threat to family farms, ignoring the fact that
the large majority of large dairy farms are family operations.  Mega dairy farms would be considered
small businesses in every other industry that I know of.  Our industry needs considerably more large
herds if it is to maintain its current market share of the national milk supply.  The only hope that we
have to save some smaller dairy farms is to insure that the infrastructure (veterinarians, feed dealers,
equipment dealers, nutritionists, milk handlers, etc.) remains competitive and available by ensuring that
a critical mass of milk is produced locally.
 
2. Economic impact issues.  In all three states, the dairy industry has a significant impact on the rural
economy.  All too often, however, the magnitude of the impact is severely underestimated even by our
own industry.  For simplicity reasons, the economic impact of the dairy industry generally is reported
using farm gate receipts, as if the milk check remained entirely on the farm without being spent, and as
if the milk was leaving the state without further processing.  Farm gate receipts do not account for the
indirect and induced effect of an agricultural industry, which effects are very large in the dairy industry.
Dollars generated from the production of milk and its processing flow through the economy, and
multiply many times during the span of a year.  Dr. Cameron Thraen and I at Ohio State used a standard
input-output method to estimate the economic impact of a new 2,500-cow dairy in Northwest Ohio.  To
the surprise of many, we estimated that a farm of this type has a long-term, sustainable economic
impact amounting to $134 million per year and generates a total of 129 additional jobs earning an
average of $21,700 per year.  A dollar flowing through a dairy of any size fuels 7 to 10 additional
dollars of economic activity per year.  Our rural sector and its tax base are heavily dependent on the
economic activity generated by our industry.  Our failure to communicate this message appropriately
explains in part the erosion of our political support.
 
3. Animal waste issues.  Many of our inner cities are gross examples of the dismal failure of some of our public development policies.  Most of those working in towns or cities live outside the town boundaries.  Extensive road networks allow many would-be urbanites to live their dreams of country living and weekend farming.  Unfortunately, their perception of rural living differs substantially from historical reality.  Imagine, Elsie the cow comes with an unmistakable odor!  Amazingly, most people would be very insensitive to someone complaining of neighborhood noise if
he knowingly built his house in an industrial park.  But the same is not true for people complaining of
agricultural odors although they built their house in an "agricultural park".  This battle, however, was
lost a long time ago.  New approaches must be designed and used if we don't want to eventually loose
the war.  Targeted research in this area could play a dramatic role.
 
4. Research issues.  Some time very soon, the dairy industry will have to face the fact that applied
research, especially in the area of farm management will have to be industry-funded.  In years past,
research in both applied and basic areas of dairy production was heavily funded by governments,
primarily the federal government.  In real terms, public investments in applied dairy research have been
steadily declining over the last few decades.  Currently, the critical mass of public research dollars in
applied dairy research simply is not there.  The research agenda has slowly shifted through time.  At the
risk of being over simplistic, current public research efforts can be grouped into two clusters:
fundamental (basic) research and "feel-good" research.  It is sad, but (almost) true, that it is easier to
secure grant money to fund a program teaching unwed, teenage mothers on how to cook spaghetti than
it is to fund a research program in applied dairy management.  Thus, most of the questions asked by our
progressive industry must be answered from expert opinions as opposed to research-based facts.
Currently, issues of optimal cow grouping, bunk space, feeding frequencies, essential milking routine
elements, body condition score, facilities layouts, etc., are answered almost solely from anecdotal
evidence.  If we are to rely on scientific evidence as the basis for decision-making, then our industry
will have to get involved directly in the funding of research activities.
 
On a national basis, dairy producers are assessed $0.15/cwt of milk sold to fund the dairy check-off
program.  This program currently is raising over $240 million per year and it funds for advertising and
marketing programs, and some research in the development of dairy products.  However, by federal
mandate, not a single dollar goes to production research.  I know of no other industry or company that
ignores so completely the funding of research to improve the efficiency of production of its raw
product.  The paper and timber industries, for example, spend large amounts of money to find ways of
improving the productivity of land dedicated to wood production.  Currently, Ohio has a voluntary
dairy research check-off program.  This program is not very effective due to the low level of
participation by Ohio producers.  Indiana has no equivalent program.  Currently in Michigan, there is
an initiative underway to implement a production research and education check-off program of
$0.015/cwt sold, with all Michigan dairy producers investing.  We, in Ohio, are hoping very much that
this initiative fails!  Otherwise, we may loose much more than annual football games in the future.

5. Leadership issues.  Old-fashioned dairy leadership is still very much present in each of our states.
This leadership shows a characteristic pattern of "protect and defend".  But there also is an emergence of
new leadership best characterized as "grow and expand".  The clash between the two types of leadership is
obvious even to remote observers and does a disservice to the industry.  On the marketing side, a flurry of
mergers and consolidations has resulted in huge dairy cooperatives with a national scope.  This may be
good to the marketing of our milk, but state and regional dairy leadership have been left with a large void.
In all three states, however, we are witnessing the emergence of new professional dairy producers
organizations.  It is vital that our industry does not stand on the sideline while these younger organizations
mature.  Their failure would be an unmistakable omen of an outstanding Darwin Award for our Tri-State Dairy Industry.
 
 

1999 WILL BE A RECORD INCOME YEAR DESPITE $9.79 BFP!
FINALLY - FEDERAL REFORM ON THE HORIZON
Cameron S. Thraen
The Ohio State University Extension
Department of Agricultural, Environmental, and Developmental Economics
Dairy Economist / Extension Specialist
 
 “We have never been able to eat our way out of dairy surpluses.”
 
If you are a member of the dairy fraternity – either as a producer, a buyer, or on the support team –  I do not
have to tell you what happened to milk price in October and November.  The October $11.49 BFP was
followed by a November BFP of $9.79.  Others will remind you that this November price is the lowest in
over two decades – that’s right, you have to go back 21 years to find a similar price.  I would remind us all
that this is not a very useful comparison as way back then we where operating in a totally different milk
market environment.  To the contrary the fact that the BFP fell to such a low level is not the real news for
1999!  The real news is that the BFP was as high as it was from July through September!  The July ’99 BFP
posted in at $11.42 and then promptly rose to $16.29 in September.
 
The question to be answered is why did the BFP rise so precipitously at all?  We know the answer - which I
went over in some detail in my November price report - so suffice it to say that the market moved on
misinformation and psychology.  We in the industry knew that early 1999 was shaping up to be an
expansion year for milk production.  We could see by the dairy product production numbers coming out of
NASS that the industry was building inventory.  But we really wanted to believe that we were eating our
way through the mountain of cheese and butter and that eventually the numbers would prove this out.
Guess what?  Even though commercial disappearance was running very healthy, it did not happen and the
price highs set by the CME cash cheese market were not sustainable.  But all told, 1999 will be another very
good year for dairy producers.  Let’s review some of the facts:
 
Dairy Income: The USDA Agricultural Outlook reports that income from the sale of milk off farms totaled
$24,146 billion in 1998.  This was up $3.2 billion or 15.4% over 1997.  For the first seven months of 1999,
milk sales income as reported by the USDA was $13,746 billion.  This is 3.4 % higher than for the same
period in 1998.  Higher BFP price through September will keep this number on pace with last year, and then
lower prices for October through December will pull us back to more normal levels.  With milk – feed ratios
at high levels not seen since mid-1980’s, income surging in into dairy operations can mean only one thing –
MORE MILK!
 
Milk Production – West: The current increase in milk production is concentrated in the Southwest, West
and Northwest.  November milk production compared to a year ago shows milk production up 12.1% in
California, up 7.2% for Arizona, 14.9% in Idaho, 11.7% in New Mexico and 2.1% in Washington.  The
dairy expansion is evident by milk cow numbers up 3.3% in California, 2.2% in Arizona, 10% in Idaho and
7.8% in New Mexico.  Ideal weather for milk production is evident by milk per cow up 7.8% in California,
4.7% in Arizona, 4.4% in Idaho, 3.4% in Washington, and 3.7% in New Mexico.
 
Milk Production – East: In Ohio, cow numbers were down just slightly, 3,000 cows, and with a solid
increase in milk per cow – up 70 pounds, total milk production showed a 4.1% increase over last year.  Milk
production was up 2.6% in Pennsylvania due to fewer cows – 2,000 head, but more milk per cow 40
pounds.  New York had 2.7% more milk from a slight decrease in cow numbers – down 2,000, but 40
pounds more milk per cow.
 
Milk Price Outlook: Let’s take stock of what we are facing in coming months and year.  Production of milk
and product has responded robustly to very healthy income to the dairy sector over the last 14 to 16 months.
Milk prices have soared into unprecedented territory and retreated abruptly back to near normal levels twice
in 1999.  This expansion in milk production has resulted in very large stocks of dairy products overhanging
the markets.  The general economy is quite strong and commercial demand remains good.  With cheese
prices at or near the support price of $1.10 per pound, the demand for cheese to go into storage should
pick-up.  There is very little risk of losing value on that inventory when purchased at these prices.  This may
help to bring milk price up somewhat in the first half of 2000.
 
Futures Markets: The Chicago Mercantile Exchange settlement prices on the BFP contracts trading out for
January through May are currently in the $10.97 to $11.39 range for the January through May contracts.
This is below the 10-year average for the BFP.  While the low milk prices will begin to improve culling and
reduce the torrid pace of production, this will be slow process and producers still face the real possibility of
a price decline after the new year begins.  It may be prudent to secure some downside price protection on
some of the first half 2000 production.
 
The December BFP: It could be at $9.95 if the current strength in the cheese market holds and if the pay
price in Minnesota and Wisconsin runs $0.50 higher than the November BFP of $9.79.  If this price comes
about look for a December Uniform or Blend Price at $12.00.  The down side of this is what may happen in
the cash cheese market.  If December prices for #40 blocks in the $1.18 range do not hold, and cheese prices
move back toward support, we could see a BFP lower than November!  How much lower – possibly $9.45.
I do not think that this will happen but it is a possibility. ¨
 
 

1999 TRI-STATE DAIRY MANAGEMENT CONFERENCE - A SUCCESS
 
Over 450 people from 11 states attended the inaugural Tri-State Dairy Management Conference last November.
 
Organized by the Extension system of Michigan State, Ohio State, and Purdue
with the help of an advisory committee made up of dairy producers and agribusiness
representatives, conference delivered state-of-the-art  technology and information
pertaining to the management of competitive dairy herds in  Indiana, Michigan and Ohio.
Attendees enjoyed the break-out format for most of the conference, allowing them to
mingle with regional and national experts.  Plans are already underway for the next
conference in 2001.  A proceedings of all presentations made at the conference is
available for $17.75 (including shipping and handling) by contacting Jennifer Winkler,
The Ohio State University, Department of Animal Sciences, 2029 Fyffe Road, Columbus,
OH 43210 (614) 688-3143.
 
 

All educational programs conducted by The Ohio State University Extension are available to clientele on a nondiscriminatory basis without regard to race, color, creed, religion, sexual orientation, national origin, gender, age, disability or Vietnam-era veteran status.
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.