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Buckeye Dairy News : Volume 15 Issue 2
Market and Policy Watch 2013
Dr. Cameron Thraen, State Extension Specialist, Dairy Markets and Policy, The Ohio State University
By now, it is well known that a new farm bill was not signed into law, and many of the dairy provisions of the 2008 farm bill where extended through September 2013. The Milk Income Loss Contract (MILC) payment program was extended using the more generous payment parameters. While most Washington watchers give the passage of a new farm bill in the coming months less than a 25% chance, the provisions of that bill, when signed into law, will very likely be based on the margin insurance and market stabilization programs as put forth in the Dairy Security Act. This puts the focus of coming dairy policy on income over feed cost (IOFC) margins. A colleague of mine has made the point in past issues of Buckeye Dairy News that an IOFC margin calculation based on U.S. average milk and feed values is pointless, as such a calculation may bear little connection to an individual dairy operator’s actual milk price or feed cost. While it cannot be argued that calculating IOFC with using the USDA reported All Milk price, corn price, soybean meal price, and alfalfa hay price is representative of specific IOFC on any given dairy farm, this observation misses the point.
As a dairy farmer, you will be provided the opportunity to participate in an insurance program with costs based on your dairy production size and premiums paid based on IOFC coverage levels selected. In return, you will be participating in potential financial payouts triggered by an macro measure of the IOFC for the entire United States dairy industry. This is purely a financial consideration. As a dairy farmer, do you wish to participate in this program, incurring cost and potential financial payouts, or do you wish to go another direction, relying on the private market instruements, such as futures market hedging, futures puts or Calls, or possibly purchasing Livestock Gross Margin Insurance.
Regardless, the focus of income support for agriculture, including dairy, will be on providing the opportunity for farmers to particiapte in an insurance program, whether that be crop insurance or IOFC insurance. Therefore for dairy, it is important to be able to forecast this national IOFC margin for the coming production year. Working with John Newton, Ph.D. graduate student in the Department of Agricultural, Environmental and Development Economics, we have developed just such a forecast model for this IOFC.
The IOFC is a forecast based on a complex model which uses the Chicago Mercantile Exchange (CME) Group futures market price paths for feed inputs and milk price. The IOFC time path over the coming 12 months suggests that the least favorable period will be January through March, 2013 and then recover through the remainder of 2013 (Figure 1). The figure depicts the mean, median, and upper 75% and lower 25% bands for this projection.
The lower 25% boundary is the most pessimistic outlook, showing that a combination of low milk price and high feed input prices, will result in an IOFC path dropping to nearly $5/cwt before recovering to only the $6.75/cwt range late in 2013. This time path for IOFC reflects continuing drought in the corn belt and higher feed cost. The optimistic 75% boundary depicts an IOFC time path reflecting stronger milk prices and lower feed input prices. The low point is just above $6.00/cwt and steadily recovers over the year to reach $9.00/cwt by late 2013. This time path reflects a return to more normal crop conditions with lower feed cost and higher milk prices.
You can find updates for this IOFC forecast chart on my website: http://aede.osu.edu/programs-and-research/ohio-dairy-web.
Figure 1. The 2013 projected income over feed cost (IOFC) based on the proposed Dairy Security Act.
The Costs of Nutrients and Comparison of Feedstuffs Prices
Dr. Normand St-Pierre, Extension Dairy Management Specialist, Department of Animal Sciences, The Ohio State University
As I write this column in late March, it is snowing in central Ohio and the Midwest is once again under a blanket of snow. That’s good for restoring soil moisture in a region that had been under a severe drought, but at some point, we would like to see some corn in the ground if we are to see a 14+ billion bushels crop next fall. There is no need to be concerned as of yet, but it sure would be nice to see the sunshine once in a while…
Meanwhile, the feed markets are up one day, down the next. Unless something big happens, that’s probably what we’ll see until the next crop of corn and soybean starts coming in. On the milk side, reduced production in the U.S. combined with a drastic reduction in New Zealand due to a severe drought, an inability for the European Union to raise its output and relatively steady demand in the U.S. are pointing to increased dairy exports in months to come and substantially better domestic milk prices in late spring. The futures markets are not reflecting this as of yet because traders are talking too much with traders and U.S. dairy economists…
For now, feeding balanced diets based on economically priced feed ingredients can help in maintaining positive margins. The idea is to maximize the use of underpriced feeds and to minimize the use of overpriced ones.
As usual in this column, I used the software SESAME™ that we developed at Ohio State to price the important nutrients in dairy rations to estimate break-even prices of all major commodities traded in Ohio and to identify feedstuffs that currently are significantly underpriced as of March 18, 2013. Price estimates of net energy lactation (NEL, $/Mcal), metabolizable protein (MP, $/lb – MP is the sum of the digestible microbial protein and digestible rumen-undegradable protein of a feed), non-effective NDF (ne-NDF, $/lb), and effective NDF (e-NDF, $/lb) are reported in Table 1. Compared to its historical 6-year average of about 10¢/Mcal, NEL is still a highly priced nutrient at 17.8¢/Mcal. In fact, dietary energy is up 2.5¢/Mcal from its January price. This is important because a cow producing 70 lbs of milk/day requires in the neighborhood of 33 Mcal/day of NEL. For MP, its current price (34.6¢/lb) is also greater than its 6-year average (28¢/lb) but not significantly so. Thus, we are currently in a period of very high dietary energy and moderate protein prices. The cost of ne-NDF is currently discounted by the markets (i.e., feeds with a significant content of ne-NDF are price discounted), but the discount of 6.0¢/lb is below its 6-year average (-9¢/lb). Meanwhile, unit costs of e-NDF are about at their historical average, being priced at 1.3¢/lb compared to the 6-year average (3.3¢/lb). So, dietary fiber, whether effective or not, is currently not a significant cost factor from a historical standpoint. Of course, this may depend on how bad your crops were affected by the drought last summer.
Table 1. Prices of dairy nutrients for Ohio dairy farms, mid-March 2013.
Economic Value of Feeds
Results of the Sesame analysis for central Ohio in mid March are presented in Table 2. Detailed results for all 27 feed commodities are reported. The lower and upper limits mark the 75% confidence range for the predicted (break-even) prices. Feeds in the “Appraisal Set” were deemed outliers (completely out of price). One must remember that Sesame compares all commodities at one point in time, mid March in this case. Thus, the results do not imply that the bargain feeds are cheap on a historical basis.
Table 2. Actual, breakeven (predicted) and 75% confidence limits of 27 feed commodities used on
Ohio dairy farms, mid-January 2013.
For convenience, Table 3 summarizes the economic classification of feeds according to their outcome in the Sesame analysis.
Table 3. Partitioning of feedstuffs, Ohio, mid-January 2013.
Brewers grains, wet
Corn, ground, shelled
41% Cottonseed meal
Distillers dried grains
Soybean meal – expeller
48% soybean meal
Alfalfa hay – 40 NDF
44% soybean meal
As usual, I must remind the readers that these results do not mean that you can formulate a balanced diet using only feeds in the “bargains” column. Feeds in the “bargains” column offer savings opportunity and their usage should be maximized within the limits of a properly balanced diet. In addition, prices within a commodity type can vary considerably 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. Also, there are reasons that a feed might be a very good fit in your feeding program while not appearing in the “bargains” column.
The Dairy NRC 2001 Lives On
Dr. Bill Weiss, Professor and Extension Dairy Specialist, The Ohio State University
Many people still use the 2001 National Research Council (NRC) computer model to evaluate diets for dairy cattle; however, the original version will not work on new 64 bit machines. Furthermore, the original software had an error in the equation used to estimate the energy requirement of grazing cows that caused a substantial over-estimation of the requirement (approximately a doubling). The equation that calculated the passage rate for dry forage also had an error that resulted in a 10 to 15% underestimation of the rate. The Program has been modified so that it runs on 64 bit machines and those two errors have been corrected. In addition, the window size has been modified so that it will fit better on some computers. The new version is available to download without cost at: www.ca.uky.edu/nrsp-9/ When you get to the main screen, click on the “Modeling” button located on the lower left side. When the new screen appears, scroll down and click on Software Downloads Dairy 2001 NRC (at the time of this writing, it actually said Dairy 2000 NRC, but that is a typo and should be corrected by the time this article appears). If you scroll further down the page, you will see what changes were actually made to the software by clicking “Detail Dairy NRC (2001) Software Modifications”.
You do not need to uninstall the previous version for this revised program to run.
New Animal Disease Traceability Rule Announced by USDA
Ms. Peggy Hall, Agriculture and Resource Law Specialist, The Ohio State University Extension
A new rule establishing general regulations for improving the traceability of U.S. livestock moving between states became final on December 20, 2012 and became effective on March 11, 2013. The USDA has established the animal disease traceability rule to help target when and where animal disease occurs and to facilitate a rapid response that should reduce the number of animals involved in a disease investigation. According to USDA Secretary Tom Vilsack, “The United States now has a flexible, effective animal disease traceability system for livestock moving interstate, without undue burdens for ranchers and U.S. livestock businesses. The final rule meets the diverse needs of the countryside where states and tribes can develop systems for tracking animals that work best for them and their producers, while addressing any gaps in our overall disease response efforts.”
The animal disease traceability rule differs from the National Animal Identification System launched by the USDA in 2006 and later discontinued for lack of voluntary participation by producers. An important guiding principle for the new rule is that it is state-driven. The traceability framework will be owned, led, and administered by the States and Tribal Nations with federal support. The rule proposes to provide maximum flexibility for the States, Tribal Nations and producers to work together to find identification solutions that meet their local needs and to maintain traceability data at their discretion. The intent of the rule is to address only those animals moving interstate and to encourage the use of low-cost technology.
We will take a closer look at the rule in the next few months, but for now, a few important notes about the rule are:
- Unless specifically exempted, livestock moved interstate must be officially identified and accompanied by an interstate certificate of veterinary inspection or other documentation, such as owner-shipper statements or brand certificates.
- The use of brands, tattoos, and brand registration will be accepted as official identification when accepted by the shipping and receiving States or Tribes.
- Backtags remain an alternative to official eartags for cattle and bison moving directly to slaughter.
- All livestock moved interstate to a custom slaughter facility are exempt from the regulations.
- Chicks moved interstate from a hatchery are exempt from the official identification requirements.
- Unless moved interstate for shows, exhibitions, rodeos, or recreational events, beef cattle under 18 months of age are exempt from the official identification requirement (traceability requirements for this group will be addressed in separate rulemaking).
The USDA will work with states to implement the rule in the coming months. For more information on the new rule, visit http://www.aphis.usda.gov/traceability/.
The Importance of Knowing Dry Matter Concentration When Buying (or Selling) Feeds
Dr. Bill Weiss, Professor and Extension Dairy Specialist, The Ohio State University
A new article has been published as a Dairy Issues Briefs (DIBS # 28-13) titled “The Importance of Knowing Dry Matter Concentration When Buying (or Selling) Feeds”. It can be accessed at: https://dairy.osu.edu/DIBS/dibs.html