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Buckeye Dairy News : Volume 1 Issue 12
Milk Price Outlook
Cameron Thraen, Dairy Economist
The announced Basic Formula Price (BFP) for the month is $16.84 per cwt. for milk testing 3.5 percent butterfat. This price is up to $0.80 over the last month price and $3.88 higher than a year earlier. With weakening butter prices, the current butterfat differential is 17.8 cents. A year earlier the butterfat differential was 16.7 cents. Remember the current BFP is equal to the base month M-W price @ 3.5 of $16.26 plus a butter/powder/cheese price adjustment from August to September of $0.58. This adjustment is primarily a result of continued strong cheese price increases this fall. The USDA reports that milk production across the U.S. continues strong for this time of year.
The key factors influencing the BFP price over the next couple of months will be the growth in production and the demand in the cheese market. The current CME cheese price has remained at the 1.90 level and may have reached a plateau. The seasonal break for schools will leave milk looking for an outlet and this could translate into a turn down in cheese prices. If so, November may be the peak for the BFP this year. We will have to wait and see what happens with holiday demand.
All CME BFP contracts out through June traded down on December 11th. The December contract settled at $16.20, off 10 cents from the day before. The January BFP contract closed at $16.17, off 26 cents. In the product markets, block cheese prices were steady at $1.90 and the AA butter price was down at $1.3950. Grade A nonfat dry milk was trading at 1.5550, trading down from a week ago
Key Factors to Success
Don Rogers, a keynote speaker at the Ohio Dairy Conference, suggests 10 key factors for success in the dairy industry.
1. Herd size. It's not that you are big or small, but rather that you are sized to match your resources efficiently. Herds of less than 100 cows should focus on maintaining low capital inputs, family labor, and not fancy facilities in a one crop system. Herds larger than 200 cows must focus on capital, labor and facilities efficiency. Herds in the 100 to 200 cow size appear to be in a very awkward situation and should either downsize or expand.
2. Herd Production. Again, balance is emphasized. Aggressive managers can target 24,000 lbs/cow using bST and three milkings/day. Herds can also be successful at less than 20,000 lbs/cow with two milkings per day and no bST by using management intensive grazing, for example. The point is that herd production should be in relationship with the production intensity (input costs).
3. Labor efficiency. This measure is very important to the bottom line. Reasonable benchmarks are 800,000 lbs. of milk per worker with total labor costs 15% or less of milk sales.
4. Cost control. This is the number one measure. We need to remember that the dairy industry is primarily a wholesale manufacturing business. When you produce and sell at the first stage of the food chain, your main driving factor is to produce at the lowest cost per hundredweight. All dairy managers should know their costs per hundredweight.
5. Investment/cow. Too much high-priced land, fancy equipment and facilities will make it very difficult to get any return. Goals should be:
* Equipment: < $1,200/cow
* Land and facilities: <$3,500/cow
6. Replacement program. The following goals should be met at a reasonable cost:
* Calf mortality < 5%
* First freshening < 24 months
* Body weight > 1,200 lbs at calving.
7. Reasonable culling rate. The ideal culling rate 28 to 32%. Voluntary culling is another important measure. Half or more of the cullings should be for low production, not because of poor feet or such.
8. Risk management. We have seen some wide savings in dairy profitability. Add to this weather and disease uncertainty and the risk tolerance level is very critical to long run financial strength. These are responsible risk levels:
* Debt/cow under $2,500 when not in expansion mode.
* Debt/cow during expansion phase should not be over $3,500/cow for more than 3 years.
* Net worth should always be over 50% of total assets and above 40% during expansion.
9. Quality of life. Being tired and burned out all the time is not healthy. It results in mistakes, labor problems and divorces. You and your employees need time off, vacation and profit- sharing.
10. Leadership. Put simply, leadership is simply taking charge of your destiny. To be effective, you need to know where you are going and prepare diligently to get there. People love to be led by someone who has their act together. At a dairy seminar, a herdsperson asked "The biggest problem is the owner - how do we replace him?"
Dairy Extension Specialist
A Great Success!
With over 300 attendees, the first Ohio Dairy Conference attracted considerably more people than expected by the organizing committee. Despite the strain imposed by this unexpected attendance, the program was kept on schedule and most of the attendees relished the opportunity to gather and talk about a diversity of dairy topics.
The conference was preceded by the Monsanto pre-conference where close to 200 people learned the dynamics of the U.S. dairy industry, the changes in eating and demand patterns of U.S. consumers and how marketing of dairy products will be key to the future of our industry.
A survey was distributed to all attendees who answered unanimously that this conference should be held again on a regular basis.
For those who could not attend, copies of the Proceedings are available for $25 by contacting Jennifer Winkler at (614) 688-3143.
Dairy Extension Specialist, Editor