Buckeye Dairy News: Volume 11 Issue 4

  1. MarketView...U.S. Dairy Outlook Brief 2010

    Dr. Cameron Thraen, Milk Marketing Specialist, The Ohio State University (top of page) pdf file

    The current discussion front and center for everyone involved in the U.S. dairy industry involves how broken the current system is and in what manner can this be repaired.  My comments in this issue of BDN center on explaining what in the world is going on with U.S. dairy, milk prices, and dairy farm financial health. My comments center on the chart shown below:

    Thraen Figure 1

    This chart depicts the total number of milk cows in the U.S. herd over the period of January 1998 through September 2009.  In particular, I wish to draw your attention to the three sub-periods; July 2000 through December 2004, January 2004 through July 2008, and January 2009 through September 2009.

    In the first period the U.S. total milk cow numbers show that the national herd peaked in the first three months of 2000 at an average of 9.228 million milk cows.  Just following this period, the Class 3 milk price reached its lowest price of $8.57/cwt in November 2000.  Over the next 42 months, the number of milk cows declined (with a short period of reversal) from this 9.228 to 8.985 million head, a 2.5% reduction of 244,000 head.  Balancing supply with demand, which over this period was essentially domestic use, the Class 3 milk price rose from the low of $8.57 to $20.58/cwt in May of 2004.  Clearly reducing the number of milk cows produced a better and more profitable balance between milk supply and demand and a better bottom line for U.S. producers.

    Now consider the period January 2004 through December of 2008.  The total number of dairy cows in the U.S. dairy herd increased 3.87%, almost unabated, by 348,000 head to peak at 9.333 million head in December 2008.  Over this period, the Class 3 milk price moved between a low of $10.83/cwt in May of 2006 to an all-time high of $21.38/cwt in July of 2007.  What is different about this period versus the first period highlighted?  Why with so many additional cows in milk, did the price manage to climb to over $20/cwt?

    In the second period, the balancing of domestic supply with domestic demand was augmented with the new demand for export products from the United States.  This impacted prices first in the skim milk powder market, absorbing all of our considerable government stocks of nonfat dry milk, then bleeding into the whey protein market and finally impacting on the supply and demand balance for cheddar cheese.  High skim milk powder prices over this period had the impact of reducing the production of cheddar cheese as cheese processors sought less expensive ways of making cheese).  It is the augmentation of domestic demand by export demand which fueled the unparalleled increase in the size of the U.S. milk cow herd.

    Now to the last section to highlight.  The period January 2009 through September 2009.  With the economic growth in the world economies coming to a grinding halt over the period July 2008 to December 2008, this augmentation to domestic demand from exports vanished literally over a couple week period in mid December 2009.  Without this additional demand to absorb the output from 9.3 million head of highly efficient dairy cows in the U.S., there was no manner in which milk prices could remain at the $20/cwt level.  And of course they did not do so, falling almost immediately back to just under $10/cwt.  The reaction in the U.S. dairy industry has been dramatic.  In a space of only eight months, the industry has jettisoned 2.2% of its cows, 207,000 head.  The current number of milk cows, 9,126 million head, represents a tremendous culling over a very short time period.  Note that the time-frame is even more compressed as the real culling began in earnest after April 2009.  Culling to date puts the number of milk cows back to the December 2006 level, a level commensurate to balance domestic demand, but not at the $20/cwt milk price, but at the $10/cwt level.  The cows going to slaughter represent primarily herd expansions on farms that will continue to produce milk, and complete dairy farms, such as those herds purchased by the Cooperatives Working Together program, which have exited.

    The question before us now is where do we go from here?  The Chicago Mercantile Exchange futures price on Class 3 is projecting a $14.49/cwt average for the coming 12 months.  The September 2009 USDA Livestock, Dairy and Poultry report projects a Class 3 price in the $13.75 to $14.75/cwt range.  These prices reflect the view both in the market and from the dairy economists that the cow herd must be reduced more if we are to see prices better than these projections. 

    On the policy side, there are calls for a wait and see program, meaning do nothing on the supply management front, and let the natural exodus of cows and farms continue.  At some point, the balance between supply and domestic demand will be restored and prices will rise.  Will they rise back to the levels of 2007 and 2008? It depends on the depth of the retrenchment and the speed with which the domestic and international demands return.  Clearly, a new balance will be achieved.  As I have written in BDN before, I believe that the number of milk cows which will restore normal profit margins to U.S. dairy farms requires another 100 to 140 thousand head to exit the industry.  This would put the U.S. industry back to the January 2004 level with a milk supply that will balance against domestic plus some small amount of export demand.   Make no mistake about this reduction.  It will be painful for many as most of the cows that have been sent to slaughter are from expansions and marginal producing cows.  Those yet to exit will likely represent entire farms.

    Others call for new federal programs designed to limit both the number of dairy cows and the efficiency of those cows on a farm by farm basis.  These programs will work; they work in other countries such as Canada, but they do come at a cost to the U.S. industry.  That cost is the overall efficiency of the U.S. dairy production sector.  Supply management programs make it difficult for the dairy sector to react swiftly to new market opportunities, such as the growth of the export demand in 2007 and 2008.  The cost of not implementing a supply management program of some type will be the continued swings in dairy prices, farmer income, and net returns.   This is the thorny and difficulty challenge the industry will have to deal with in the coming months.

  2. The Good News: Feed Costs Have Declined Over the Past Year


    We’ve been tracking the cost of nutrients over the past three years, based on the estimates obtained from SesameIII predictions.  Since last fall, the average cost of nutrients to feed a cow producing 75 lb/day of milk has decreased 70¢/day (Figure 1).  Energy prices have declined by more than 50%, but some of this has been counter-balanced by the large increases in protein prices.  Currently, it costs more to deliver metabolizable protein (MP) to the cow than energy (Figure 1). 

    Knapp Figure 1

    Figure 1.  Predicted nutrient costs to feed a 1500 lb Holstein cow producing 75 lbs/day of milk with 3.80% fat and 3.10% true protein.  While the cost of energy has decreased over the past year, the cost of metabolizable protein has increased by more than 50%.

    While some of this increased MP cost is derived from RDP (rumen degradable protein), the price of digestible RUP (dRUP; RUP = rumen undegradable protein) makes a larger contribution (Table 1).  Work with your nutritionist or feed company representative to ensure that you’re getting the best quality (highly digestible and consistent) ingredients to provide RUP in your rations.













    RDP ($/lb)












    dRUP ($/lb)












    Table 1.  Estimated price of protein fractions in 2008 and 2009.

    The cost of the key nutrients was estimated using SesameIII software and break-even prices of commodities and forages used in dairy rations were predicted (Table 2).  Net Energy of Lactation (NEl) is estimated at 4.8¢/Mcal, which is substantially lower than what we’ve seen during the past three years.  Metabolizable Protein (MP) at 61¢/lb is the highest we’ve seen historically.  The prices of corn gluten meal and hydrolyzed feather meal are heavily impacting this value, while blood meal currently is a good value in providing digestible RUP.  Non-effective neutral detergent fiber (neNDF) and effective NDF (eNDF) are –6.9 and 5.3¢/lb, respectively, well within their normal ranges.  It is common for neNDF to be negative, as feeds that have high levels of this nutrient, such as by-products like distillers’ grains, corn gluten feed, etc., are discounted in the market relative to other feeds.  Good- to high-quality, home-grown forages continue to be an excellent and inexpensive source of effective NDF.

    Based on mid October wholesale prices for central Ohio, feed commodities fall into three groups:


    At Breakeven %


    Brewers’ grains, wet
    Corn grain, ground
    Corn silage
    Distillers’ grains w/sol
    Expeller SBM
    Gluten feed
    Meat and bone meal
    Wheat midds

    Alfalfa hay 44NDF 20% CP
    Bakery byproduct
    Blood meal
    Cottonseed, whole
    Feather meal
    Gluten meal
    Soybeans, whole
    Soybean meal, 48% CP
    Wheat bran

    Canola meal
    Cottonseed meal, 41% CP
    Fish meal
    Soybean meal, 44% CP

    The usual caveats with SesameIII™ results apply.  You cannot formulate a balanced diet using only the feeds in the Bargains column.  These feeds represent savings opportunities and can be utilized in rations to reduce feed costs within limitations for providing a balanced nutrient supply to the dairy cow.  Prices for commodities can vary 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.  Feeds may also bring value to a ration in addition to their nutrient value, e.g. tallow as a “carrier” and dust suppressant in vitamin/mineral pre-mixes and molasses as a source of sugars. 

    The detailed results of the SesameIII™ analysis are given in Table 2.  The lower and upper limits give the 75% confidence range for the predicted Break-Even prices.  Feeds in the “Appraisal Set” are either those that were completely out of price range (outliers) or had unknown prices, such as the alfalfa hays of different nutritional quality. 

    Table 2

    Table 2.  Prices of dairy nutrients, and actual wholesale, breakeven (predicted) and 75% confidence limits for feed commodities used on Ohio dairy farms.

    While feed costs are down and this will help improve income-over-feed costs, producers will still want to work closely with their nutritionists and feed sales representatives to control feed costs and maximize income over feed costs. 

  3. Pulse on Ohio’s Dairy Industry

    Dr. Maurice Eastridge, Extension Dairy Specialist, The Ohio State University Extension (top of page) pdf file

    The economic crunch on Ohio’s dairy industry has been overwhelming. The rising costs of production with the decline in milk price created a situation of net loss. This crisis has been compared to the 56-month crisis of 1972-1977 in which both periods experienced extremely high feed prices (A Collapse in Demand Distinguishes the Current Dairy Crisis from the 56-Month Crisis of 1972-1977, Dale Leuck, Dairy Economist, Farm Service Agency). However, the drop in domestic and world demand of dairy products contributed in a major way to the current crisis. Increases in demand of dairy products and decreases in supply of milk would help to bring the price of milk up more rapidly. Although we certainly function within a national and global market, it is interesting to note the changes in Ohio’s dairy industry. Year-to-date (as of September) data reveal that the number of cows in Ohio has dropped only by 0.4% (approximately 1,000 cows) compared to 2008, but milk production has increased 0.6%. The mild summer temperatures, good feed supply, and improved management have contributed to this increase. In Figure 1, you will observe the small drop in cow numbers from September 2008 to September 2009. However, it is quite interesting to note the incremental increase in September milk production from 2007 through 2009. The increase in milk yield per cow is even more interesting. In 2007(47.8 lb/day), many farms in Ohio were using bovine somatotropin (BST). By September 2008, most farms shipping fluid milk had discontinued the use of BST because of the demands placed by processors for non-BST milk. Yet, milk yield per cow increased slightly in September 2008 (48.3 lb/day) compared to September 2007. Milk yield increased to 50.7 lb/day in 2009, a 5% increase compared to the prior year. Our concern has been that with the financial crisis, farmers would be cutting corners too sharp in feeding strategies due to the low cash flow, but milk yield does not reflect that has occurred. In Figure 1, the Ohio average for 593 Holstein herds on DHI was 55.9 lb/day (64.6 lb/day for milking cows), 10% above the average for all cows in Ohio. One of the solid messages is that management strategies to increase efficiency of dairy operations have been invoked and must continue. In general, the fall harvest of forage has resulted in high yields of good quality forage. The next six months will be a critical time for survival of Ohio’s dairy farm families. Debt load has continued to increase and in talking to people who have travelled around Ohio, bunkers on some farms were not filled with corn silage this fall. Management of cows, people, and finances will be the focus of those that survive this period of crisis.  

    Figure 1

    Figure 1. Number of milk cows (x 1000), milk produced (million lb), and milk yield per cow (lb/day) during September 2007, 2008, and 2009 in Ohio, and average milk yield per cow of 593 Ohio Holstein herds on DHI as of October, 2009.

  4. 4-H and Collegiate Dairy Judging Results

    Mrs. Bonnie Ayars, Extension Dairy Program Specialist, The Ohio State University Extension

    The World Dairy Expo contest results were their finest!  The team finished 4th out of 27 participating state teams.  Congratulations to the members who included Robin Alden (Danville), Michelle Funk (Jeromesville), Ty Etgen (Wapakoneta), and Jared Smith (Plain City). Jared was the star as the 4th high individual and also earned the highest score in placings. He will be featured in many national publication photos that report the contest. In breeds, the Ohio team was 1st place in Holstein, 3rd in Brown Swiss, and 5th in Jersey. Individually, Michelle was 2nd in the Jersey breed. Jared was 2nd in the Holstein breed followed in third by his teammate, Ty. Robin placed 13th for her reasons and Michelle and Jared were in the top 25 for their reasons.  Ty was also 17th overall. Ty and Michelle are currently attending ATI and Robin and Jared are in high school.
    At the Pennsylvania All American contest, the three team members competing were Ty, Robin, and Jared.  All three finished in the top 25 with Robin in 6th, Ty in 14th, and Jared in 21st.  As a team, they were 3rd in Ayrshire, 2nd in Brown Swiss, and 4th in Holstein and then overall, the team placed 4th. Robin completed her most successful outing as 7th in reasons, 8th in Ayrshire, 2nd in Brown Swiss, 5th in Holstein, and 4th in Jersey.
    These 4-Hers should be congratulated for accepting the challenge and their outstanding results. These competitions are much more than judging cows.  They are experiences that last a lifetime.
    The team is coached by Bonnie Ayars, Extension Dairy Program Specialist. Many thanks to Mr. Bernie Heisner and Kelly Epperly for their assistance and also to Noel Alden, who accompanied the group on the Wisconsin trip and lended his invaluable expertise.
    More information on all the results can be located at http://www.world-dairy-expo.com/nws.main.cfm for Madison results and for the PA All American, http://www.allamerican.state.pa.us/files/2009%20IYDCJC%204H%20Results.pdf


    The OSU dairy judging teams are having a successful season with some excellent results to report, including a first ever for the OSU team. There were four separate contests in 3 states during the month of September in which the Buckeyes participated. The primary Scarlet team finished 4th at Eastern States with John Langel securing the 4th high individual designation.  Other team members included Stephanie Neal, Rachel Foureman, and Paul Keener.  At the PA All American contest, the team of Neil Duncan, Paul Keener, Stephanie Neal and John Langel were ranked 6th overall with three members finishing in the top 25.  In reasons, the team was 4th and Neil Duncan was 7th in this category. We finished in the top 5 for two breeds.  With a brief interlude to begin classes and work at Farm Science Review, the team then made their way to the national contest held at World Dairy Expo in Madison, WI.  Teams from 19 universities were on hand to compete and once again OSU was the 6th high team, the most prestigious contest of them all.  Stephanie, John, and Neil all finished in the top 25 overall in placings AND reasons to receive an All American distinction.  Neil was 10th high individual. The team also finished in the top five of three separate breeds.  Individually, Paul was 3rd in Brown Swiss and Neil was 1st and 5th in two breeds.  An additional honor also went to Stephanie for earning a perfect 50 score for a set of reasons.
    Results for World Dairy Expo contest: http://www.worlddairyexpo.com/you.intercollegiate.cfm
    Results for PA All American Contest http://www.allamerican.state.pa.us/files/2009%20IYDCJC%20Collegiate.pdf 
    Results from Eastern States Contest http://www.thebige.com/agriculture/Results/09results/09agintcollegeteamsres.pdf
    The understudy Gray team walked away with top honors at the Accelerated Contest in Viroqua, Wisconsin.  This was the first time ever that Ohio State has won this contest.  It was an exciting evening for the team composed of Hannah Thompson, Laura Gordon, Jason Miley, and Curtis Bickel.  The results were most impressive!  Jason was 3rd high overall, Curtis in 5th place, and Hannah in 7th.  The team was 3rd in oral reasons, but Jason was 2nd overall in this portion. In the breeds, Jason was the winner in the Milking Shorthorn breed and Hannah was tops in Guernsey. The team was high for Holstein and Guernsey, 3rd in Jersey, and 2nd in Milking Shorthorn. Look for more details on this team as they compete in the North American Contest in Louisville, KY.

    Accelerated Contest Results: http://www.accelgen.com/docs/dairy/jc2009results.doc

    Web links to Milk Marketing Information: Ohio Dairy Web - http://aede.osu.edu/programs/OhioDairy/; eDairy, Inc. - http://www.dairy.nu/