Buckeye Dairy News : Volume 12 Issue 2

  1. MarketView...U.S. Dairy Outlook Brief May through July 2010

    Dr. Cameron Thraen, Extension Specialist, The Ohio State University

    In this installment of The MarketView, I will take stock of the current milk production situation in Ohio and contrast this with the U.S. dairy situation.  At the end of this piece, I will explore how this translates into the outlook for market price.

    Milk Cows and cow productivity: Ohio

    In the first two charts, Chart 1 and Chart 2, you will see the number of milk cows in Ohio (Chart 1) and the yield per cow (Chart 2).  Yields and production data are each adjusted to reflect a 30-day month.

    Chart 1

    Cows in milk peaked in Ohio back in the May through July period at 282,000 head.  Looking at Chart 1, you can see two adjustment periods.  The first period  begins with August 2008 and ends December 2008.  Milk cows moved down 6,000 head.  The second period occurred in late 2009. In fact, milk cows increased marginally from May to September 2009 before starting down in earnest.  This was due, no doubt, to the influence of the Milk Income Loss Contract (MILC) payments and a short lived resurgence in milk price during this period.  This promoted an atmosphere of optimism that holding on just a bit longer might pay off.  It did not, and over the period of October 2009 through March 2010, Ohio milk cow numbers declined by 10,000 head.  With the average herd size for Ohio at 74 cows, this represents 135 producer-farms exiting the industry as the financial screws tightened.

    Chart 2

    Chart 2 shows the productivity on Ohio dairy farms.  During the 2008 through April 2010 period, milk per cow per day has increased by 6 lb/day (13%).  During the financial calamity that occurred in 2009, productivity on Ohio dairy farms actually increased from a low of 48 lb to 53 lb/day.  The latest run shows productivity increasing sharply over the January through April 2010 period.  Milk output has increased from 50 to 56 lb/day.  This is a result of Ohio dairy producers culling low producing cows from the herd.  Removing these low producers while shrinking the overall herd raises the average milk cow output.

    Milk Cows and cow productivity: United States

    In the second two charts, Chart 3 and Chart 4, you will find the number of milk cows, United States, (Chart 3) and the U.S. yield per cow (Chart 4).

    Chart 3

    The national dairy herd peaked during the April 2008 through January 2009 period at just over 9.3 million head.  With the collapse of the milk price in February 2009, dairy producers began a more aggressive culling of low producing cows.  The Cooperatives Working Together (CWT) program also began an aggressive campaign to use its farmer paid funds to remove dairy cows.  This culminated in the dramatic slide in cow numbers nationally (see MarketView, BDN March edition for a detailed look at this culling activity).  From a peak of 9.334 million head in December 2008 to a low of 9.082 million head in December 2009, the nations dairy herd declined 2.7%.  With better milk prices and lower input prices, this slide ended in January 2010, and over the first four months of this year, the dairy producers have added back 14,000 dairy cows.

    Chart 4

    The productivity pattern for the national dairy herd is very similar to that experienced in Ohio.  The latest numbers show milk productivity, measured by milk output per cow per day, as increasing rather sharply from 55 to 60 lb/day.  With 14,000 more dairy cows in milk, this 5 lb/day rise means there is productive capacity for 70,000 lb/day of additional milk coming on the market.

    Annual Milk Production, Ohio and the United States

    Charts 5 and 6 show the annual production levels for Ohio and the United States.  Each monthly production level shows the 12-month rolling average or the total production for the past 12 months.  Looking at Chart 5, we can see that milk production in Ohio showed only a slight deviation from its trend during 2009.  Milk production capacity is now approaching 5.2 billion pounds annually.  Looking at the 12-month rolling average for the United States (Chart 6), we can see that the very significant trend in U.S. productive capacity for 2008 came to halt in 2009, dropping back for most of the year, and then declining over the last four months of 2009.  With stronger milk prices in the early months of 2010, increasing cow numbers and milk productivity, milk production capacity is on the upswing, but still below the 2008 peak.

    Chart 5

     

    Chart 6


    Ohio share of U.S. milk production

    The final chart in the overview of Ohio and U.S. milk productive capacity is Chart 7.  This chart shows the Ohio share of total milk production over the past two plus years.  The message is clear.  Ohio is increasing its share of milk production relative to the rest of the United States.  This share has increased from a low of 2.67% in early 2008 to 2.74% as of April 2010.

    Chart 7

    Milk production capacity and the Class 3 price

    Chart 8

    Chart 8 shows the relationship between the rate of change in the U.S. capacity to produce and market milk and the Class 3 milk price.  I have used this chart in past Marketview articles to reinforce the point that rates of growth in our milk production capacity, which exceeds 2% per year, is accompanied by Class 3 milk price below $15/cwt.  The only exception to this occurred at the peak of the world speculative housing bubble, 2007 and early 2008.  This was an anomalous time period, when all commodity markets including dairy commodity markets were off the chart on the demand side.  Looking at Chart 8, and setting aside this anomalous 2007-2008 period, high milk prices are created by negative annualized growth rates, as with 2004, or with annualized growth rates sustained below 2% per year, as with July 2006 through June 2007.

    Current market price outlook

    Chart 9

    The current Chicago Mercantile Exchange (CME) Class 3 milk futures price is shown in Chart 9, along with the median Class 3 price and the upper and lower quartile bounds.  As of May 19, 2010, the May 2010 futures price is $13.36/cwt.  The median price for May 2000-2009 is $12.30/cwt.  The CME Class 3 price pattern shows prices just a bit above the long-term median price through October 2010 and then increasing significantly for the months of November 2010 through April 2011.  Why the dramatic increase in the latter part of the coming 12 months?  The answer is one of two views.  Either there will be a renewed culling beginning in earnest at the end of the summer due to continued financial pressure on the nation’s dairy farms, or the market is anticipating a resurgence in domestic and more importantly international demand toward the end of 2010, or possibly a combination of these two events.  What will take place?  I do not know.  What I think you can take from this edition of the MarketNews is that the growing milk production capacity in the United States suggests that milk prices will remain below the $15/cwt mark over the summer.  If a resurgence of international demand does come toward the end of 2010, the Class 3 price may be in the upper $14/cwt range.   As a planning price, for those shipping milk in Ohio and the Mideast Federal Milk Marketing Order, I would suggest using a Class 3 price of $14.50/cwt. and add another $1.00 to get a blend price of $15.50/cwt.

    In the next edition of MarketView for Buckeye Dairy News, I will review the demand side for the market.  This will include a review of domestic disappearance and developments in the international markets.  Stop back in July.
    This would be good time to learn more about the use of futures and options to protect your milk price should a pricing opportunity arise in the coming weeks or months.  Also consider learning more about the Livestock Gross Margin Insurance product available to dairy producers.  Each of these provides a management tool to which can assist you in protecting your milk price in 2010 and 2011.  You can find out more about this by visiting my website: http://aede.osu.edu/programs/ohiodairy.  Look for the links to Livestock Gross Margin Insurance or Price Risk Management.

  2. Does it Pay to Increase Milk Components at Current Prices?

    Dr. Joanne Knapp, Principal Technical Consultant, Fox Hollow Consulting, LLC, Columbus, OH (top of page)

    Yes!  If you’re a believer, you can quit reading now and go do something more important.  If you’re a skeptic, let’s keep going.  With current component prices of $1.5810/lb milk fat and $2.1449/lb milk protein, fat is worth more than protein in terms of income over nutrient costs (IONC; Table 1) on a herd basis.  However, every point of protein is worth more than the same point of milk fat.  Generally, it is easier to achieve larger improvements in milk fat than protein.  Fortuitously, quite often nutritional and feeding management changes aimed at improving milk fat will also result in increases in protein.

    Table 1.  Income and nutrient costs of milk components per month for a herd of 100 Holstein cows producing milk at 75 lb/day with 3.70% milk fat and 3.00% true protein.  Income based on April Federal Milk Marketing (FMM) prices and nutrient costs from SesameIII analysis (below).

     

    Income
    (milk sales)


    Cost (nutrients)
    Net
    (IONC)

    Body Weight

    $ -
    $ 4,273.17
    $(4,273.17)
    Fat
    $13,417.58
    $ 3,664.10
    $ 9,753.48
    Protein
    $14,746.83
    $ 6,020.88
    $ 8,725.94
    Other Solids
    $ 2,271.35
    $ 2,164.69
    $ 106.66
    Water
    $ 801.54
    $ -
    $ 801.54
    Total
    $31,237.30
    $16,122.84
    $15,114.45

    Currently, in FMM 30, herds are shipping milk with 3.73% milk fat and 3.06% true protein.  There is substantial herd-to-herd variation.  Figure 1 shows the increase in milk income for the fat and protein components at approximately 1 standard deviation above and below the average.  What if your herd is above that average?  In this situation, the IONC is $816/100 cows/mo more than the average herd at the same production level.  Note that this accounts for the extra nutrients and feed required to produce the higher level of components.  There are multiple nutritional and feeding management approaches to increase milk components.  You should work closely with your nutritionist and feed company representative to implement these changes.

    Figure 1

    Figure 1. Income over nutrient costs (IONC) varies as a function of milk components at the same level of production (MF = milk fat, blue bars; TP = true protein, red bars; prt = protein; income and costs in Table 1 are provided.

    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 increased from March’s value.  Metabolizable Protein (MP) at 44.9¢/lb is down from March.  This is the lowest we’ve seen it in the past year.  It reflects the decrease in prices of ingredients with high rumen undegradable protein content, such as feather, meat-and-bone, and corn gluten meals.  Non-effective neutral detergent fiber (neNDF) and effective NDF (eNDF) are relatively unchanged at –9.0 and 4.0¢/lb, respectively.  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 eNDF.  Overall, feed prices continue to have little change this crop year, unlike what has been seen in the past.  The observation that corn and soybean prices have changed little despite the fast pace of corn planting and the very good Brazilian soybean crop this spring may indicate that these commodity markets are still being distorted by hedge fund investments.

    Based on early May wholesale prices for central Ohio, feed commodities fall into three groups:

    Bargains

    At Breakeven

    Overpriced

    Corn grain, ground
    Corn silage
    Cottonseed meal, 41% CP
    Distillers’ grains w/solubles
    Expeller soybean meal
    Feather meal
    Gluten feed
    Hominy
    Meat and bone meal
    Wheat midds

    Alfalfa hay, 44% NDF 20% CP
    Bakery byproduct
    Brewers’ grains, wet
    Gluten meal
    Soybean meal, 48% CP
    Soybeans, whole

    Blood meal
    Canola meal
    Cottonseed, whole
    Fish meal
    Molasses
    Soybean meal, 44% CP
    Soyhulls
    Tallow
    Wheat bran

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

    Table 2

  3. Annual Banquet for the Buckeye Dairy Club and the Department of Animal Sciences

    Dr. Maurice Eastridge, Extension Dairy Specialist, The Ohio State University

    The Annual Banquet for the Buckeye Dairy Club and the Department of Animal Sciences at The Ohio State University was held on May 8 at the Der Dutchman Restaurant in Plain City.  It is held annually for recognizing students for their accomplishments as scholarship recipients, their involvement in co-curricular activities such as the OSU Dairy Cattle Judging Team and the Dairy Challenge, and their activities in the Buckeye Dairy Club; recognition by faculty and staff in the Department of Animal Sciences; and induction of dairy leaders into the Dairy Science Hall of Service. The scholarship winners were: AGS - Clair Jones – Chad Riethman; Lemmermen – Kevin Jacque; COBA/Select Sires Wallace Erickson –Stephanie Neal; Dairy Farmers of America – Jason Hartschuh; Wayne and Jane Dalton –Teresa Smith; Bob Gano – Sara Scheerer; Genex, Inc., Merle Starr –Laura Gordon; Ohio Agribusiness Association – Matthew Borchers; Salisbury – Andrew Lefeld; Ludwick – Linda Brahler; McMunn – Alissa Hunter, Rebecca Lehane, Laura Gordon, Kevin Jacque, and Andy Lefeld; Brakel – Kirk Massey; and H.E. & Florence Kaeser – Jason Miley and Greg Heiby.

    The recognition to Buckeye Dairy Club members included: Outstanding Freshman – Ashlee Dietz; Outstanding Sophomore – Jason Hartschuh; Outstanding Junior – Andy Lefeld; and Outstanding Senior – Ryan Langenkamp. The Prestigious Member Award (plaque plus $500 scholarship) was granted to Kevin Jacque. The 2010 officers for the Buckeye Dairy Club are: President - Stephanie Adams; First Vice-President – Jason Hartschuh; Second Vice-President – Linda Brahler; Recording Secretary – Rachel Foureman; Corresponding Secretary – Hannah Thompson; Treasurer – Andy Lefeld; Assistant Treasurer – Kevin Jacque; CFAES Student Council Representative – Teresa Smith; and Web Page -  Stephanie Neal.

    Another highlight of the program was the induction of Mr. Tom Fleming (Harrod, OH), Mr. Bernie Heisner (Hilliard, OH), and Dr. Bernie Erven (Columbus, OH) into the Dairy Science Hall of Service. These three men have made major contributions to Ohio’s dairy industry – our THANKS to them for their many years of dedicated service.

  4. Success at the 19th Annual Tri-State Dairy Nutrition Conference

    Dr. Maurice Eastridge, Extension Dairy Specialist, The Ohio State University

    The 19th annual Tri-State Dairy Nutrition Conference was held on April 20-21 in Ft. Wayne, IN. Despite the economy, the attendance was up about 1% (440 in attendance) and the number of exhibitors was up by 26% (53 exhibitors). Zinpro sponsored the pre-conference program, and it too went very well. Although the Tri-State’s speaker from Spain was not able to make the Conference because of a cancelled fight due to the volcanic eruption in Iceland, his presentation with audio was sent electronically and then he was live via the internet to answer questions. The average attendance at the Conference is about 8 years, with about 65% of the attendees from the feed industry, 24% university personnel (faculty, staff, and students), 9% veterinarians, and 2% dairy farmers. About 29% of the attendees were from OH, 21% from MI, 12% from IN, and the remaining attendees were from 18 other states, Canada, Brazil, and Japan. The attendees were asked “During the economic crisis for the dairy industry, what changes have you observed in feeding and management?” The two major responses were: Calves and heifers: 1) Fed cheaper or less starter/grain mix, and 2) feed additives removed; Lactating and dry cows: 1) Less use of feed additives, and 2) More use of home grown feeds/forages. Additional results of the survey and the articles from the Proceedings are available at:  http://tristatedairy.osu.edu/proceedings.htm. The Conference will be held April 19-20, 2011 – the 20th year with special features!

  5. Ohio State, Cal Poly, Cornell, and UW-Madison Earn 1st Place at the 2010 National Dairy Challenge

    Dr. Maurice Eastridge, Extension Dairy Specialist, The Ohio State University

    Teams from The Ohio State University, California Polytechnic State University, Cornell University, and University of Wisconsin-Madison earned the highest award– First Place Platinum– in the ninth annual North American Intercollegiate Dairy Challenge (NAIDC), held April 9-10, in the Visalia, CA area.

    The contest was hosted by Cal Poly and California State University-Fresno, attracting teams from 30 universities located throughout the United States and Canada. Each team of four was challenged to put their textbook and practical knowledge to the ultimate test– analyzing a dairy farm. The contest started with a walk-through at one of the four host dairy farms, followed by the opportunity to ask questions of the owners and analyze farm-specific data. Teams used this information and their observations to develop management recommendations, and then presented their recommendations to the herd owners and a panel of five dairy industry judges.

    Members of the First Place Platinum teams received $200 scholarships. This was the second consecutive year for the teams from Ohio State and UW-Madison to earn the contest’s highest ranking.

    Ohio State’s team, coached by Maurice Eastridge, consisted of Ryan Conklin, Annie Eilenfeld, Heather Moff and Amanda Paulhamus (pictured below).

    "The Dairy Challenge brings the future of the dairy industry together in one location where knowledge and experiences are shared and gained, and where they gain a broader perspective of the market we participate in,” said NAIDC chairman Barry Putnam. “That is why the Dairy Challenge is so highly thought of by all of those who have participated throughout our history of now just over 2,000 future leaders."

    Host dairies for the 2010 NAIDC were Delta View Farms, owned by Gregory “Butch” Dias Jr. and sons Greg and Darren; El Monte Dairy, operated by Art and Sandra Van Beek; Longfellow Farming Co., George and Bill Longfellow, owners; and Valley View Farms, operated by Ken and Joanne Walker and John and Hilda Knevelbaard.

    Dairy Challenge Team

    Pictured: Heather Moff (Canfield, OH), Dr. Maurice Eastridge (Coach), Amanda Paulhamus (Linden, PA), Andrea Eilenfeld (Lucas, OH), and Ryan Conklin (Plain City, OH).