Buckeye Dairy News : Volume 17 Issue 2

  1. Dairy Commodity and Milk Price Outlook for April – June 2015

    Dr. Cameron S. Thraen, Associate Professor and OSUE State Dairy Markets and Policy Specialist, Department of Agricultural, Environmental and Development Economics, The Ohio State University

    It will come as no surprise that dairy commodity prices have made a significant retreat from the historic highs reached in 2014.  Those commodity prices used to determine the farm gate price for milk to U.S. producers have declined as follows: nonfat and skim milk powder price, after peaking in early 2014 at $2.10/lb has retreated to the $1.00/lb; whey price peaked mid year 2014 near $0.70/lb and is now bringing $0.50/lb; cheese price experienced a double top in 2014 at the $2.30 to 2.40/lb range and now trades at $1.55/lb; butter price, after shooting into orbit, rising from $1.40/lb mid 2013 to peak at $2.85/lb in mid 2015, now brings only a meager $1.70/lb.  With these retrenchments in dairy commodity prices,  the U.S.  All Milk price has fallen from a record $25.70/cwt to $17.60/cwt for January 2015, the latest official number.

    Much has been written and discussed about these price declines.  Some critical factors are: [1] world milk production response to the high prices experienced in 2014, [2] China, as a major milk powder import player at the margin, pulling back after significant inventory buildup in late 2013 and extending through 2014, [3] a return to more normal weather patterns impacting production from Australia and New Zealand., and [4] to cap it off, the value of the U.S. dollar has been on an upward rampage, increasing over 25 basis points from its weakest point back in mid-2011.  While good news for those of us buying products imported to the U.S., this is not good news for those wishing to export products from the U.S.  All U.S. agricultural products flowing into export markets are just that much more costly to the import buyer.

    Looking forward, the good news, if you choose to look at it this way, is that it appears that the dairy commodity prices we now are experiencing are at or very close to the bottom of their respective price cycles.  As we get through the next month or two, these prices will begin to rebound and move higher.  Also, the strong value of the U.S. dollar is hurting U.S. exports of grains, and this in turn, is holding down market prices for corn, soybeans , and soybean meal – two main feed stocks in the calculation of the U.S. income over feed cost margin.  With U.S. national average price for corn under $4/bu, soybean meal less than $375/ton, and hay price just under $175/ ton, the income over feed cost margin appears to be near its bottom at $7.50/cwt.  Based on futures market prices and projections into 2015, this margin will begin to increase and move back toward the $10/cwt mark by the end of 2015 (shown in the chart from the Margin Protection Program Decision Tool).

    Fig 1

  2. Milk Prices, Costs of Nutrients, Margins and Comparison of Feedstuffs Prices

    Dr. Normand St-Pierre, Extension Dairy Management Specialist, Department of Animal Sciences, The Ohio State University

    Milk Prices: The Swirling Winds

    It looks like we might have a spring after all.  As we all wait anxiously for our fields to dry off enough to allow field work, sowing, and planting, we are left to ponder about what direction the swirling dairy winds will be taking for the balance of the year.  As I often wrote, predicting milk prices beyond a 3-month horizon is risky at best.  However, we can look at the current status of the major factors influencing dairy prices to get an idea of where prices are heading, assuming no unforeseen events.

    What traders are saying.  One can always look at the futures Class III prices to get an indication of where people trading contracts think milk prices will settle for the balance of the year.  As of this writing, Class III futures are averaging $15.40/cwt for April, May, and June, and $16.23/cwt for the balance of the year.  These translate to mailbox prices in the $16 to 17/cwt for Ohio producers.  Not great, in fact below the average total cost of producing milk in Ohio, but above the average cash cost of production.  Both the Class III and IV futures have dropped in the last 3 to 4 weeks following an upsurge from the mid-January lows.  This upsurge was the result of factors occurring completely outside our borders.

    The New Zealand drought.  In late 2014, Fonterra (the dominant milk company in New Zealand) announced that milk production in New Zealand would be dropping considerably due to a drought over most of the country.  Although there were some areas experiencing below normal rainfall, some postulated that the apparent drought was nowhere as severe as what was being inferred.  But world buyers became worried of possible lower production from the world’s largest exporter.  Prices of products traded on the Global Dairy Trade (a global electronic auction system operated by Fonterra) began to rise, leading U.S. domestic buyers to presume that higher dairy prices were forthcoming.  Well, whether the drought was real or not, cyclone Pam has brought plenty of rain to New Zealand.  Combined with the European Union soon abandoning its quota system (April 1), and the incoming spring flush in the U.S., buyers now think that there should be plenty of milk around in the incoming months.  Plus, the Chinese have stopped buying.

    Economic hiccup in China.  We are not talking of an economic disaster in China, but clearly its rate of economic growth has noticeably slowed down.  Also, there is a general consensus that China misread the world milk supply last year and bought way too much dairy products, thinking that product availability would become even tighter later on.  Apparently, not even 1.3 billion people could consume that much stuff, so the flow of dairy imports from China has slowed down considerably.  To make things worse, the world once again likes our dollar.

    The good old greenback is once again in demand.  As you likely have read, economic growth in Europe has come to a near halt.  Governments and central banks are intervening, using some of the same fiscal tools as those that were used in the U.S. just a few years ago, including lowering interest rates, and well, printing money (quantitative easing).  Meanwhile, Russia’s economy has been sickened by the economic sanctions resulting from its involvement in the Ukrainian conflict, and oil exporting countries have seen their revenues from oil exports cut in half from where they were last summer.  All of a sudden, the U.S. economy doesn’t look so bad anymore.  Because most people anticipate the Feds to raise interest rates, many world investors suddenly have a keen interest for the potential yield and the security of the greenback.  Consequently, the U.S. dollar has appreciated over the past year by 13% vs. the New Zealand dollar, by 15% vs. the Australian dollar, and nearly 25% vs. the Euro.  This is good if you are planning a vacation overseas but not so good if you are trying to export dairy products and you are competing with these countries for foreign markets.

    Rays of sunshine.  Of course, milk prices are only one part of the profit equation.  Cow productivity and the costs to produce milk are arguably as important.  We have had a miserable winter from a human standpoint in the central and eastern U.S., but our cows have generally done well during these cold days.  We also are finding out that the 2014 corn silage crop was on an average much better than what we had in 2013.  The quality of our feeds looks quite good.  On the crops side, the South American corn and soybean crops are reportedly huge.  In North America, although a few areas of the U.S. are dryer than normal, the subsoil moisture reserves range for the most part from good to excellent.  Unless an unpredictable event occurs, the domestic and international stockpiles of grains and oilseeds should become even larger, resulting in moderate to potentially low feed costs for the foreseeable future.  Of course, things can change in a hurry, but as things stand for now, what we have in terms of price and dairy profitability should remain pretty much the same for the balance of the year.

    The Cost of Feeding Cows: Nutrient Prices

    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 19, 2015.  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 now marginally inexpensive at 8.5¢/Mcal.  This is important because a cow producing 70 lb/day of milk requires in the neighborhood of 34 Mcal/day of NEL.  At this time last year, the average cost of a Mcal of NEL was 13¢.  Thus, the daily cost of supplying dietary energy to lactating dairy cows has dropped by about 35% in 12 months.  For MP, its current price (56¢/lb) is 2 times greater than its 6-year average (28¢/lb), but 9¢/lb less than at this time last year.  Thus, we are currently in a period of slightly below average energy prices but still considerably above average protein prices.  The cost of ne-NDF is currently discounted by the feed markets (i.e., feeds with a significant content of ne-NDF are priced at a discount), and the discount of -7¢/lb is near the 6-year average (-9¢/lb).  Meanwhile, unit cost of e-NDF is more than 3 times its 6-year average, being priced at 9¢/lb compared to the 6-year average (3.3¢/lb) but below what it was at this time last year (11¢/lb).  Fortunately, a dairy cow requires only 10 to11 lb of e-NDF, so the daily cost of providing this nutrient is about $0.95/cow/day (i.e., 10.5 lb × $0.09 per lb).  So from a historical basis (i.e., using averages from the last 6 years as the bases of comparison), feeds and their nutrients are still expansive but not as much as last year.

    Table 1. Prices of dairy nutrients for Ohio dairy farms,
    mid-March 2015.
    NSP Table 1

    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 those for which we didn’t have a 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.  For convenience, Table 3 summarizes the economic classification of feeds according to their outcome in the Sesame analysis.

    Table 2.  Actual, breakeven (predicted) and 75% confidence limits of 27 feed commodities used on
    Ohio dairy farms, mid-March 2015.
    NSP Table 2

    Table 3. Partitioning of feedstuffs, Ohio, mid-March 2015.

    Bargains

    At Breakeven

    Overpriced

    Bakery byproducts
    Corn, ground, shelled
    Corn silage
    41% Cottonseed meal
    Distillers dried grains
    Feather meal
    Gluten feed
    Hominy
    Soybean meal – expeller
    Wheat middlings

    Alfalfa hay – 40% NDF
    Blood meal
    Cottonseed, whole
    Meat meal
    48% Soybean meal
    Roasted soybeans

    Beet pulp
    Brewers grains, wet
    Canola meal
    Citrus pulp
    Fishmeal
    Gluten meal
    Molasses
    Soybean hulls
    44% Soybean meal
    Tallow
    Wheat bran

    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.

    What’s Left in Your Pockets: Milk Margins

    The national income over feed cost margin program implemented in the last Farm Bill, better known as the Dairy Margin Protection Program (DMPP), uses national prices for milk, corn, soybean meal, and alfalfa hay to calculate a national dairy margin per hundredweight of milk.  Insurance payments are triggered by a two-month average margin for consecutive pairs of months.  This program does not factor in regional differences in prices, as well as differences in the range of feed commodities available in different markets.  These issues can be addressed by considering the whole basket of feed commodities in a given market, from which the costs of major nutrients can be priced; this is what is done in Sesame.  We have named this approach the Cow-JonesTM.  For Ohio, our benchmark cow produces 70 lb/day of milk at 3.8% fat, 3.1% true protein, and 3.7% other solids.  Based on the recommendations from the National Research Council (NRC, 2001), this cow requires 33.7 Mcal/day of NEL, 5.04 lb/day of MP, 10.66 lb/day of e-NDF, and 3.55 lb/day of ne-NDF and would consume 50.8 lb/day of dry matter.  Using the current approximate net farm price of $16.50/cwt for milk, we can calculate income, feed costs (really the average cost of providing the required nutrients and milk margins, better known as income over feed costs).  Table 4 reports these results for March 2015 (milk price being estimated at this point in time).

    Table 4.  Income, feed costs, and milk margins for Ohio, March 2015.1

     

    $/cow/day

    $/cwt

    Income

    11.55

    16.50

    Feed (nutrient) costs
    6.37
    9.10
    Milk margins
    5.18
    7.40

    1Calculated for a benchmark cow weighing 1,500 lb and producing 70 lb/day of milk at 3.8% fat, 3.1% true protein, and 5.7% other solids.

    One should note that the milk margins do not include the cost of feeding dry cows and replacement heifers.  There are good reasons why the cost of feeding replacement heifers should not be considered (it is a replacement cost, similar to that of replacing a piece of machinery).  As for the costs of feeding dry cows, they should be included, but as it turns out, they represent about $0.50/cwt in a herd where lactating cows average 85% of its mature animals population (i.e., lactating and dry cows).  Hence, the milk margins including the dry cows would be about $6.90/cwt, which is $0.60/cwt below what we think is the average break-even margins in Ohio ($8.00/cwt lactating cows only; $7.50/cwt lactating and dry cows combined).  Fortunately, many producers have prepaid some expenses in 2015 from 2014 income.

    Appendix

    A few people have asked that I publish the results using the 5-nutrient group (i.e., replace metabolizable protein by rumen degradable protein and digestible rumen undegradable protein).  A table containing these results is provided herewith.

    Table 5. Prices of dairy nutrients using the 5-nutrient
    solution for Ohio dairy farms, mid-March 2015.
    NSP Table 5

  3. Importance of Collecting Good Milk Samples

    Dr. Luciana da Costa, Department of Veterinary Preventive Medicine, The Ohio State University.

    As basic as it looks, some producers are still not fully aware and familiarized with the importance of or how to collect a milk sample. Part of mastitis control programs consist on culturing and on the microbiological analysis of milk samples. However, to be able to identify the bacteria, strict aseptic procedures must be used when collecting the samples. Aseptic collection is extremely important to avoid contamination with bacteria present on the skin of the cow, hands of the sampler, and environment. And yet, the importance of collecting a good sample goes beyond udder health. Improper milk samples can interfere with how much producers are paid (improper samples can lead to violations for high SCC or high bacterial count). It is also detrimental for processors when evaluating milk quality (results based on an inaccurate sample can put at risk the whole tanker load of milk). 

    For purposes of a mastitis control program, either bulk tank or individual milk samples can be used.

    • Bulk tank cultures are cheap and useful for herd screening and identification of the most common bacteria present in bulk tank, but they ARE NOT an accurate way of estimating the number or identify the infected cows in a herd.
    • Individual cow milk samples are more appropriate to increase the chance of finding which organism is causing the problem.
    • Composite sample (collection of milk samples from all 4 quarters into a single tube) is often used in herd screening programs. It has the benefit of reducing cost but usually provides some level of false negative results when compared to individual quarter milk samples.

    Collecting Bulk Tank Milk - Most milk haulers know the importance of obtaining an accurate sample, but it also essential that producers have the knowledge as well. Some important aspects to consider are:

    • Turn on the agitator for at least 10 minutes to ensure a representative milk sample is taken.
    • Collect samples from the top of the bulk tank, NEVER from the tank outlet (area difficult to clean and can provide an inaccurate result). Use a clean and sanitized dipper.
    • Bulk tank milk samples should be immediately refrigerated or frozen if more than 24 hours will pass until they are submitted to the laboratory for mastitis-pathogen identification. Interpretation from a SINGLE bulk tank sample results can frequently lead to inconclusive results. It should be combined with somatic cell counts, individual cow culture results, and clinical mastitis records.  

    Procedure to collect Aseptic Cow Milk Samples - The correct steps for taking composite sterile milk samples are:

    • Use proper equipment (sterile plastic tubes/vials, label with permanent markers to identify the farm, cow, and quarter being sampled; use gloves to avoid contamination)
    • Clean and dry teats and udders
    • Fore-strip teats (3 to 4 streams of milk from each teat to be sampled to remove contaminated milk from the teat canal)
    • Pre-dip teats with 0.5% iodine. Keep it on for 30 to 40 seconds.
    • Dry teats with a single use cloth or paper towel.
    • Sanitize teat ends with 70% alcohol, using special attention to sanitize the teat end.
    • Take the sample – tube should be held at an angle to avoid debris and care should be exercised to not touch the inside of the cap to avoid contamination.
    • Post-dip teats.
    • Refrigerate or freeze samples if more than 24 hours will pass until it can be submitted to the laboratory.
  4. Ohio State Students Participate in Midwest Regional Dairy Challenge

    Pictured: Front row – Carter Wallinger and Kira Andre; Back row – Joey Brown, Dr. Maurice Eastridge (coach), and Brandon Colby.

    Dr. Maurice L. Eastridge, Professor and Extension Dairy Specialist, Department of Animal Sciences, The Ohio State University

    The Midwest Regional Dairy Challenge was held February 11-13, 2015 in Sioux Center, IA and was hosted by Dordt College. There were 79 students and 20 universities and technical schools that participated in this year’s program. Four students (Kira Andre, Joey Brown, Brandon Colby, and Cater Wallinger) from Ohio State participated in the Midwest Regional Dairy Challenge. The students from each school are split up into different teams among 2 farms, with Ohio State having three students at one farm and one student at the other farm. Brandon Colby’s team placed first and Joey Brown’s team placed second from the same farm. Next year's Midwest Regional Dairy Challenge will be co-hosted by the University of Wisconsin-Platteville and Southwest Technical College in Wisconsin.  

  5. 2015 Tri-State Dairy Nutrition Conference

    Dr. Maurice L. Eastridge, Professor and Extension Dairy Specialist, Department of Animal Sciences, The Ohio State University

    The 24th annual Tri-State Dairy Nutrition Conference will be held April 20-22, 2015 at the Grand Wayne Center in Ft. Wayne, IN. The program begins on Monday, April 20 with presentations by undergraduate and graduate students and a TMR management software workshop (registration required but there is no registration fee), following by a dinner (registration required) hosted by the American Registry of Professional Animal Scientists (ARPAS) for students, university personnel, and feed industry personnel. On Tuesday, the annual pre-conference program will be hosted by Balchem with the focus on feeding transition cows (registration information available at http://tristatedairy.osu.edu/precon.php).  The Conference presentations begin on Tuesday afternoon and go through mid-day on Wednesday, with speakers from the US and Canada. The presentations will focus on nutrition and animal health, forages, and current topics. Over 50 exhibitors are expected for the trade show, and on Tuesday pm, the veterinarian dinner (sponsored by Merck Animal Health) and nutrition consultant dinner (sponsored by Diamond V) will be held. The early registration fee deadline is April 3; program and registration information is available at: http://tristatedairy.osu.edu/agenda.htm.