Buckeye Dairy News: Volume 6 Issue 6
Dairy Policy and Market Watch
Dr. Cameron Thraen, Milk Marketing Specialist, Ohio State University,
Additional milk marketing information by Dr. Thraen
Is it too early to start thinking about the expiration of the current farm bill? No. For dairy producers, there are important elements of that legislation that will expire before discussion on the next agricultural legislation begins in earnest. First, the Milk Income Loss Program Contract (MILC) program runs through the end of FY 2005, which begins October 2004. That is correct, the MILC program will terminate with the final payment month being September 2005. Without an extension authorized by Congress, this could come about at just the same time that market prices are being pressed lower by increased domestic milk production. Second, and much more immediate, the Forward Pricing Pilot program, a program which allows producers to forward price their milk within the Federal Milk Marketing Order system, is set to expire on December 31, 2004. Currently, there are two pieces of legislation in Congress H.R. 3308 and S. 2565 which would authorize a permanent status for this program. With passage of these two bills, all dairy farmers would have the ability, on a voluntary basis, to smooth out the fluctuations in market prices and forward price their milk.
The last item to mention is the National Dairy Equity Act (NDEA). This piece of legislation has been drafted by Congressman Reynolds from New York and has a number of backers. There is not enough space here to go into detail, but suffice it to say, this legislation would create a group of competing compact-like regions within the United States, attempt to set regional premiums in excess of Federal Order prices, and institute a system of 'equalization payments' among producers. This legislation envisions a new layer of control and price-setting for the United States dairy industry. It is not too early to begin to learn about, assess, and evaluate the merits and demerits of the NDEA.
The near-term outlook for dairy commodity prices, milk component prices, and Class prices is fairly robust. A general tight supply and demand balance in the U.S. dairy markets, with new strength in the nonfat dry milk market, spells a continuation of decent prices for dairy producers. With forecast dairy prices above that required to trigger a positive MILC payment, it does not appear that we can expect a positive payment until December 2004 or January 2005. Higher prices in 2004 will translate into increases in cow numbers and increased production in 2005, which will moderate prices back to more normal long-term levels. My forecast for the remainder of 2004 and a preliminary forecast for 2005 is provided in the following tables.
The near-term outlook for dairy commodity prices, milk component prices, and Class prices is fairly robust. A general tight supply and demand balance in the US dairy markets, with new strength in the nonfat dry milk market, spells a continuation of decent prices for dairy producers. With forecast dairy prices above that required to trigger a positive MILC payment, it does not appear that we can expect a positive payment until December 2004 or January 2005. Higher prices in 2004 will translate into increases in cow numbers and increased production in 2005, which will moderate prices back to more normal long-term levels. My forecast for the remainder of 2004 and a preliminary forecast for 2005 are provided in the following tables.
Table 1. Actual and forecast (f) for average dairy product prices ($/lb) from the National Agricultural Statistics Service.
2004ButterNFDM1CheeseWhey Quarter I1.720.811.400.19 Quarter II2.090.842.010.28 Quarter III f1.720.861.560.24 Quarter IV f1.580.851.450.21 Annual Average1.780.841.600.23 2005ButterNFDM1CheeseWhey Quarter I f1.420.831.330.20 Quarter II f1.530.831.320.19 Quarter III f1.650.831.460.20 Quarter IV f1.330.811.250.19 Annual Average1.480.831.340.19
1NFDM = Nonfat dry milk.
Table 2. Actual and forecast (f) average quarterly market pay prices for milk fat ($/lb), protein ($/lb), other solids ($/lb), nonfat solids ($/lb), and the Class III milk price ($/cwt).
2004Milk FatProteinOther SolidsNonfat SolidsClass III Price Quarter I1.931.950.030.6612.77 Quarter II2.373.440.130.6919.31 Quarter III f1.922.460.080.7114.55 Quarter IV f1.762.270.060.7113.28 Annual Average1.992.530.070.6914.98 2005 Quarter I f1.5126.96.36.19912.03 Quarter II f1.691.940.030.6811.90 Quarter III f1.842.220.040.6813.33 Quarter IV f1.461.950.030.6711.15 Annual Average1.702.090.040.6812.42
As a final note, the announced by Cooperatives Working Together (CWT) program will attempt to remove some 47,000 head of producing dairy cows from the national milk herd this fall. Expenditures of CWT monies will be 80% on cow removal and 20% on export subsidies. There will not be a production reduction program this round.
For a complete update on current market conditions, futures, and options markets, and policy issues of importance to Ohio and Federal Order 33 producers go to my web site, Ohio Dairy Web 2004, and click on Cam's Price Outlook.
Depooling: A call to action
Dr. Cameron Thraen, Milk Marketing Specialist, Ohio State University
Data recently made public by the Federal Order 33 Market Administrator Office shines a very bright light on the financial cost of depooling in our Mideast Federal Order, and the cost of not taking action. First a short refresher. Milk not destined for a bottling plant is pooled on a voluntary basis. That means that milk used in all but Class I can be depooled. Depooling occurs when a buyer decides not to participate in the market pool. This decision is made at the end of each month, after all class prices are known. The decision not to participate in the market pool is determined by the relative position of the Class prices to the Uniform price (utilization weighted average of Class I through Class IV prices). A Class II, III, or IV price which exceeds the Uniform price signals reduced pooling of that class. For a more complete explanation go to my Ohio Dairy Web 2004 web site: http://aede.osu.edu/programs/ohiodairy.
Losses Begin in 2003
According to detailed data compiled by the Mideast Federal Order 33, the total volume of milk depooled during 2003 was 1.87 billion pounds. Ninety three percent of this total was Class III milk removed from the market pool during the months of July through October. And what was the cost of this collective decision to not participate in the market pool? A significant $7.4 million dollars! If your milk was pooled during this period you lost an average of $0.18/cwt on your total shipment for these four months.
Cost Soars in 2004!
Milk depooled from Class III during April and May totaled 1.3 billion pounds. The cost to producers who remained pooled on the Mideast Federal Order was a staggering $21.3 million dollars. Yes, that is right, go back and read that number again. How does this
affect your bottom line? Take your total hundredweight of milk shipment for April and May and multiply by a $1.19 and that is what you lost as a direct result of the collective decision to depool milk on the Mideast Order during these two months.
Now, I am sure you have heard the argument that these are not really dollars lost to producers in the Federal Order, but instead are collected primarily by cooperatives to be paid out to producer members at a later date. Therefore, there is no need for alarm or concern. Let's look at the facts at this point. The following is a hypothetical example designed to mirror what is very likely going on in the Midwest Order.
Yes, but we all gaindon't we?
First, consider three different types of plants pooling milk on the Mideast Order. The first is a small supply plant with a 35% Class III utilization and a location differential of a plus $0.10. The second is a large volume supply plant with a 35% Class III utilization and a location differential of zero. The third is a manufacturing plant with an 85% Class III utilization and a location differential in the Mideast Order of a minus $0.25/cwt from the base zone. The Class III price for April is $19.66/cwt. The Uniform or Blend price is $15.88/cwt. The gain-loss calculations by depooling for each of the three types of plants are shown in the following table.Small Supply PlantLarge Supply PlantManufacturing Plant
Class III (%)353585 Location differential ($/cwt)+ 0.10+ 0.00- 0.25 Class III ($/cwt)19.6619.6619.66 Less: Location adjusted Uniform Price ($/cwt)15.9815.8815.63 Dollars gain by no pooling Class III milk ($/cwt)3.683.784.03 Average gain on total milk ($/cwt)11.2881.3233.425 Producer Price Differential Impact ($/cwt)-1.66-1.66-1.66 Net Producer Impact ($/cwt)-0.372-0.337+1.765
1Dollars gained are weighted by the plant's Class III percentage.
Looking at these numbers, it appears that the decision to not pool is the right one based on the dollars earned by receiving the Class III price and paying out only the adjusted Uniform price. However, gain is earned only on the milk that is Class III. When weighted by the Class III percentage the apparent gain is reduced significantly for both the small and large supply plants. The manufacturing plant still gains considerably, even with the large negative location differential.
If this were the end of the story, then perhaps the argument is correct that these dollars will eventually be paid back to cooperative members supplying milk to these plants. Unfortunately, this is not the end. Remember the depooling of such a large amount of milk has reduced all producers Uniform pay price by an additional $1.66/cwt. The last row in the table shows the net price impact on producers. The negative impact of the Producer Price Differential (PPD) swamps the gain from depooling, and all producers are worse off. The only real winner is the manufacturing plant pooling and depooling distant milk on the Mideast Order. This manufacturing plant earns a positive $1.765/cwt. Some or all of this gain may flow back to producers provided the manufacturing plant is supplied by a cooperative. If the plant's milk is supplied from independent producers, then the distribution of this gain is determined by the plant owners.
Looking at the Federal Order data, one does not have to speculate as to why milk pooled on the Mideast Order, coming from Wisconsin, Minnesota, and Iowa dropped 93% from 318 million pounds in January to 22 million pounds in April. And you can bet the cow that it will come right back again now that the Class III price is under the Uniform price, earning a positive PPD. Federal orders are about ensuring orderly marketing and this is not orderly marketing!
What can you do about this situation?
What you cannot do is sit on your hands while those in surrounding Federal Orders actively move to adopt language that will severely limit the ability to freely move milk onto and out of the order. The major cooperatives representing membership in the Upper Midwest Federal Order 30 are requesting just such a change for Federal Order 30. Recently Dairy Farmers of America and Prairie Farms Dairy, Inc. have requested a change in the pooling provisions for the Central Federal Order 32.
Doing nothing in the Midwest Order will make the Midwest Order the balancing pool for others. Distant milk will flow into the Mideast Order in an ever growing volume, reducing the average PPD when the Class III price is below the Uniform price. During periods of price volatility, and it appears that this is becoming more likely, this large volume of milk will just as quickly be depooled, imposing yet another price penalty on our producers.
The Federal Order language spells out clearly what can be done about this and how to go about making necessary modifications to the Mideast Federal Order. Dairy cooperatives
have taken a leadership role in Federal Orders 30 and 32, but they have not done so to date in the Mideast Order. "Why not" is a good question. Be reminded that Federal milk marketing orders belong to the producers of the order and an individual producer can get the ball rolling. The best recourse at this point is to contact the USDA. All that is required is a formal request to amend the order language for the purpose of tightening up on depooling and limiting the economic damage being caused the current relaxed order provision. Fancy language is not required. Send your written request to Deputy Administrator: Stop 0225, Room 2968-S; USDA, AMS, Dairy; 1400 Independence Avenue, SW; Washington, DC 20250-0225.
Nutrient Prices, Nutrient Costs, and Income Over Nutrient Costs
Dr. Normand St-Pierre, Dairy Management Specialist, Ohio State University
In this column, I periodically use a software program that we developed here at Ohio State (SESAME) to estimate the cost of major nutrients required for milk production and break-even prices of feed commodities in Ohio. Results can be used to identify potential feed bargains or feeds that appear overpriced. Based on wholesale prices, central Ohio, commodities can be partitioned into the three following groups in mid-September 2004.BargainsAt BreakevenOverpriced
Corn, ground, shelled
Distillers dried grains
Brewers grains, wet
Expeller soybean meal
48% soybean meal
44% soybean meal
Details on the estimates of nutrient unit costs, break-even prices of commodities, and break-even prices of forages are given in Tables 1, 2, and 3. For forages, the column labeled "corrected" uses correction factors that Dr. Bill Weiss and I have developed. These corrected break-even prices are more accurate and should be used when making purchasing decisions.
Table 1. Estimates of nutrient unit costs.
Nutrient name1Estimates2 NEL - 3X (2001 NRC)$0.086** RDP$-0.051~ Digestible RUP$0.227** Non-effective NDF (ne-NDF)$-0.041* e-NDF$0.061*
1NEL = Net energy for lactation, RDP = rumen degradable protein, RUP = rumen undegradable protein, ne-NDF = noneffective neutral detergent fiber, and e-NDF = effective neutral effective fiber.
2Estimates are for $/LB except for energy which is at $/Mcal.
- A blank means that the nutrient unit cost is likely equal to zero.
- ~ means that the nutrient cost may be close to zero.
- * means that the nutrient cost is unlikely to be equal to zero.
- **means that the nutrient cost is most likely not equal to zero.
Table 2. Estimated break-even prices of commodities - OH.
NameActual ($/ton)Predicted ($/ton)Lower limit ($/ton)Upper limit ($/ton) Alfalfa Hay, OH Buckeye D120129.08109.00149.15 Bakery Byproduct Meal122139.00129.91148.10 Beet Sugar Pulp, dried155118.14103.76132.53 Blood Meal, ring dried425387.32363.43411.21 Brewers Grains, wet3028.9525.7932.10 Canola Meal, mech. extracted145133.79121.95145.63 Citrus Pulp, dried136117.35109.58125.11 Corn Grain, ground dry100143.42134.78152.12 Corn Silage, 32 to 38% DM3551.2344.8657.61 Cottonseed, whole w lint196193.48170.14216.81 Distillers Dried Grains, w sol120149.33137.29161.37 Feathers Hydrolyzed Meal255292.35276.11308.58 Gluten Feed, dry87128.04118.99137.08 Gluten Meal, dry287320.85303.21338.49 Hominy109124.31116.46132.17 Meat Meal, rendered250226.37210.33242.41 Molasses, sugarcane11099.1791.80106.55 Soybean Hulls11671.4250.8791.96 Soybean Meal, expellers257267.71255.18280.33 Soybean Meal, solvent 44% CP211179.41163.47195.34 Soybean Meal, solvent 48% CP222209.98195.94224.01 Soybean Seeds, whole roasted268253.93240.10267.76 Tallow370354.19324.72383.67 Wheat Bran7380.9767.1494.81 Wheat Middlings6694.6082.52106.68
Table 3. Break-even prices of forages - OH (mg = mostly grass).
NamePredicted [$/ton]Corrected [$/ton] Grass Hay, Immature, <55% NDF142.14154.12 Grass Hay, Mature, >60% NDF148.7291.68 Grass Hay, Mid mature, 55-60% NDF140.85124.32 Grass Hay, all samples146.69104.50 Grass-Leg Hay, mg, immature <51% NDF142.24138.35 Grass-Leg Hay, mg, mature >57% NDF144.2994.52 Grass-Leg Hay, mg, mid mature 51-57% NDF144.30120.11 Grass-Leg Hay, 50/50 mix, immature134.45145.27 Leg Hay, immature, <40% NDF125.57152.79 Leg Hay, mature, >46% NDF119.1194.84 Leg Hay, mid mature, 40-46% NDF118.79122.66
We know relatively well the nutrients required to produce a certain amount of milk. Now that we have a method for calculating the implicit costs of nutrients, it is relatively straightforward to calculate a benchmark of nutrient costs and income over nutrient costs. The benchmarks published in this column will be for a 1350 LB cow producing 75 LB/day of milk at 3.6% fat, 3.0% protein, and 5.9% other solids. Component prices are those paid in the previous month (we don't know yet what component prices will be in September), whereas the nutrient prices are those for the reported month (i.e., based on September 2004 commodity prices for the September 2004 nutrient prices). Results for this month are compared with those of July 2004 and September 2003 in Table 4.
Table 4. Nutrient costs, milk gross income, and income over nutrient costs.1
NutrientSeptember 2004July 2004September 2003------------------------------ $/cow/day -------------------------------- Nutrient costs2
Vitamins and minerals0.200.200.20
Milk gross income
Income over nutrient costs6.839.096.30
1Costs and income for 75 LB/cow/day, 3.6% fat, 3.0% protein, and 5.9% other solids.
2NEL = Net energy for lactation, RDP = rumen degradable protein, RUP = rumen undegradable protein, ne-NDF = noneffective neutral detergent fiber, and e-NDF = effective neutral effective fiber.
To put these numbers in perspective, the long-term nutrient costs would average about $4.00/cow/day, milk gross income, $9.75/cow/day, and income over nutrient costs about $5.75/cow/day. Thus, although milk prices have dropped from their early summer highs, reduction in commodity prices result in a benchmark income over nutrient costs that currently exceeds the expected long-term average by 6.83 - 5.75 = $1.08/cow/day. In a well managed herd of 100 milking cows, this equates to an additional $3,240/month over the long-term average. This should help compensate for the terrible months this industry went through recently.
Milking Frequency in Early Lactation: The jury is still out
It is well known that milking frequency affects milk production. A review paper by Dr. Mark Varner at the University of Maryland estimated an average 12% response in milk yield from 3x vs. 2x milking, and an additional 8% response from 4x vs. 3x. Of course, these are averages and the actual response varies from farm to farm. Production responses to milking frequency do not come without additional costs. Cows have to be moved through the milking center more frequently, and one milking is unavoidably in the middle of the night. The extra labor equipment and utility costs can be significant, and the additional stress on the management is an important reason that many farms abandon or never use increased milking frequencies. Recently, research done predominantly by Dr. Geoffrey Dahl at the University of Illinois has shown that increasing milking frequency during the first 21 days of lactation results in a persistent increase in milk yield that continues after treatment has ceased. This seems like a free lunch! Imagine, one only has to increase milking frequency in the first three weeks of lactation to reap the benefits the rest of the year. Recent research presented at the joint annual meeting in St. Louis should reduce our expectations somewhat.
In a first trial reported by Matt Von Baale at the University of Arizona, two hundred multiparous cows were randomly assigned to one of five milking frequencies at calving to investigate the effect of increased milking frequency on milk yield with and without bST. Treatments were 6x milking for 0 (control; milked 3x), 7, 14, or 21 days in milk (with bST initiated at 9 weeks of lactation), or 6x for the first 21 days of lactation but without bST for the entire lactation. So far, only the data for the first 63 days of lactation have been summarized. Treatment effects on milk yield were small and not significant (90.8, 87.7, 91.5, 86.2, and 90.4 LB/day, respectively). Treatments did not affect milk fat (average 3.80%), true protein (average 2.80%), and somatic cell count (average 220,000 cells/ml).
The second study was conducted at Cornell University and reported by J. Fernandey. One hundred and five Holstein cows entering second or greater lactation were assigned at calving to either a control (2x milking during the entire lactation) or an increased milking frequency treatment (4x milking at 5 to 7 hour intervals from day 1 to 21 post calving, followed by 2x milking for the rest of the lactation). For the first nine months of lactation, cows milked 4x during the first 21 days had a 4.6% greater milk yield (78.l vs. 74.7 LB/day) compared to the cows milked 2x but also had a lower milk fat (3.37 vs. 3.52%) and milk true protein (2.83 vs. 2.93%) such that yields of milk fat (2.65 vs. 2.65 LB/day); 3.5% fat-corrected milk (77.6 vs. 75.4 LB/day), and true protein (2.23 vs. 2.20 LB/day) were not affected by treatments.
Based on these results and those of previous experiments, it appears that management and nutrition factors may modulate the response to milking frequency. For example, it has been suggested that holding times (time elapsed between the exit time and the return time for the last cow in a pen) in excess of 150 minutes/day negatively affects milk production. Many facilities designed to milk a pen of cows in 75 minutes twice a day cannot milk a fresh cow pen four times a day in less than 40 minutes per milking. Under these conditions, it is possible that the gain from the increased milking frequency is negated by the loss from excessive holding time.
There are other trials underway at university and commercial herds. These and other results will be reviewed by Dr. Geoff Dahl during our next Ohio Dairy Management Conference, December 2 and 3, 2004.
Length of Dry Period - Don't just jump on a band wagon without knowing if you really want to go that way
Dr. Maurice Eastridge, Dairy Nutrition Specialist, Ohio State University
The traditional length of the dry period for dairy cattle has been 60 days. It is well established from research conducted many years ago and just recently that continuous milking (no dry period) reduces milk yield in the subsequent lactation. However, with the increase in milk yield per cow whereby challenges occur in drying the cow off, new management strategies such as use of bovine somatotropin and greater than two-times-a-day milking, and with the focus more on managing cows by groups rather than as individuals, the traditional length of the dry period is being questioned.
Presently, about 16% of the cows in the Midwest calve with less than 40 days dry, but about 25% of the cows calve with greater than 70 days dry (Dairy Records Management Systems, Raleigh, NC). So on the one hand, producers should be reviewing why so many cows have extended dry periods. Long dry periods reduce milk yield and increase costs. As for reducing length of the dry period to less than 60 days, several factors need to be considered.
Most of the recent attention has been on the dry period being 30 to 60 days in length. Retrospective analysis of production data revealed that cows with about 30 versus 60 days dry had lower milk yield. However with these types of data, we must keep in mind that the 30-day dry period may have occurred as a result of disease implications or twins. Few studies have been done whereby the 30 versus 60 day dry period was planned, but of those conducted, milk yield was generally similar. Milk composition and quality were not affected by length of the dry period. However, if cows are managed as groups for a target days dry of 30, several will calve with less than 30 days dry. Therefore, a 30-day dry period is likely too short in the field given our inability to know exactly when a cow will calve.
It has been known for many years, including the use of DHI records in an OSU study reported in 1982, that optimum dry period is affected by numerous factors, including lactation number and calving interval:
Between LactationsCalving Interval< 341 days341 to 410 days> 410 days 1 and 2656360 2 and 3655035 3 and 4603530 4 and 5603030
Although these results are from a retrospective analysis, they seem to match well with recommendations from recent studies where the length of the dry period was managed (planned). Yet, differential days dry requires individual cow management. Therefore, with group management strategies, several things must be considered with dry periods as short as 30 days:
1) There may be increased risks for antibiotic residues in milk.
2) Reducing the dry period length may eliminate the need for a far-off dry cow group, but feeding anionic salts is not warranted for the increased length of the "close-up" group.
3) Although continuous milking greatly reduces colostrum quality, a shortened dry period should result in similar quality as compared to a 60-day dry period. However, the colostrum should be checked with a colostrometer.
Dairy producers should review the factors that are causing cows to have dry periods beyond 60 days and try to correct these with changes in management. Producers who desire to implement a shortened dry period should set their target on about 40 days. This will minimize the number of cows that will calve with less than 30 days dry and will accommodate the longer dry period needed by younger animals in the herd. (Additional information on dry period length will be presented by a guest speaker at the 2004 Ohio Dairy Management Conference to be held in December).