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Buckeye Dairy News : Volume 8 Issue 5
Cyclical U.S. Milk Production and Price in the Dairy Industry
Dr. Cameron Thraen, Milk Marketing Specialist, The Ohio State University, Additional milk marketing information by Dr. Thraen
Now that we have passed the nadir of the summer heat, we are entering a period when milk production and component levels rebound across the country. In this column, I will make a departure from past columns and take a look at the milk production - price cycle relationship in the United States dairy industry. This is a dynamic relationship which I find very informative as I look to the future for price direction. This relationship is depicted in a chart that is available on my website and is updated each month on the same day that the USDA releases its Milk Production report. You can get a copy of this chart and my price projections for the milk and dairy product markets by accessing my Ohio Dairy 2006 website at this address: http://aede.osu.edu/programs/ohiodairy/ . Here, you will find a wealth of information on the national, regional, and Ohio dairy industry. Current cash and futures markets charts and data and my 24-week forecast for butter, nonfat dry milk (NDM), cheese, whey, and milk prices.
Dairy production and price cycles
Quite some time ago, when I was a student in an agricultural economics pricing class, I spent a good deal of the time studying the United States hog cycle. The idea was that there where certain dynamics operating with enough regularity that a cycle between production and price was apparent in the U.S. hog industry. At that time, and I will not say how long ago that was for me, there was no discussion of a similar set of dynamic regularities for the milk production and milk price cycle. Now, I believe that there is such a relationship and you can see it in Figure 1.
Figure 1. The milk production and price cycle.
As the title of Figure 1 indicates, you are looking at the percent change in annual milk production calculated as a 12-month rolling average. For those of us who need a little refresher, the 12-month rolling average is calculated each month by taking the current and previous 11 months of milk production, summing this up to get an annual number, and dividing by 12. From this number, we calculated the percent change from one month to the next. For example, beginning with January 2000 and looking at Figure 1, we can see that milk production in the United States was increasing at a rate of 3.2%. This rate of growth continued through August 2000 with a peak of 4.0%. Now looking at Figure 1, you can readily see the milk production cycle. After the August 2000 peak, the rate of increase in U.S. milk production began to slow over the next 15 months. By September 2001, the rate was a negative 1.75%. This pattern appears to have repeated itself two full cycles since 2000 and is now beginning to complete the third cycle in 2006 and 2007.
Now factor in the milk price
Imposed on Figure 1 are the Class 3 milk prices recorded, at specific points in time, over this cyclical pattern. I have indicated both the month for peak growth and the month for the lowest Class 3 milk price. For example, the peak growth of 4.0% occurred in August 2000. By November 2000, the Class 3 price had bottomed out at a record low of $8.57/cwt. Again in December 2002, peak growth occurred at just over 2.5%, and in March 2003, the Class 3 price again bottomed out at a low $9.11/cwt. And again this year, peak growth occurred in March 2006, and the Class 3 reached bottom in May 2006 at $10.83/cwt. What does this tell us about the growth or expansion of milk production and the milk price in the United States? As dairy producers expand milk production relative to demand, the price must drop to clear the markets. This is fundamental economics 101. More milk equals lower prices. Figure 1 shows us this fundamental relationship as faster rate of growth equals lower price. It also shows that the lowest price occurs with a 3 month lag after the rate of growth in milk production peaks.
Of course, this lower price translates to reduced dairy farmer cash income from the sale of milk and a reduced incentive to continue the production expansion. Now look at Figure 1 and observe the production price reaction to a slow down in the growth rate. For example after the August 2000 peak, the rate of growth in milk production slowed to a negative 1.75%. What was the reaction of the Class 3 price to this slowdown? The Class 3 price increased by 86% to $15.90/cwt! How many months did it take to reach this higher price? Fifteen months, if you are counting. Now look at the second complete cycle beginning with January 2002 and ending with May 2004. The rate of growth in milk production picked up steam, fueled by the $15.90/cwt milk price and the expansion continued over the next 13 months. The milk price fell back to $9.11/cwt. This signal to the nation's dairy producers was clear. Over the next 16 months, the rate of growth in U.S. milk production declined. The milk price responded by soaring to a record high Class 3 price of $20.58/cwt! Parenthetically, this high price was aided by some extra-ordinary factors (extreme prolonged western heat, Posilac® (Monsanto Dairy Business, St. Louis, MO) scarcity, and a border closing with Canada), without which I believe the price would have topped out near the $15.00/cwt mark.
The current production - price cycle
Now, we are in the downward side of the third cycle since 2000. Milk production in the United States responded to the record prices of the previous cycle by expanding for a record 20 months. Over this period of expansion, the Class 3 milk price fell by 47% to a low of $10.83/cwt in May 2006. Now, we have to wait to learn how long the down side of this cycle will last before we see milk prices improve. With the past as a general guide, we can expect the down turn to last between 15 and 17 months from the peak. With the peak of the rate of growth turned-in with March 2006, this would put the end of this cycle between June and August 2007. During this slowing of growth phase, we can expect milk prices to steadily increase as we simultaneously slow the positive rate of growth in production and work off already existing product inventories through lower prices. How far milk prices will rise is not an easy question to answer. Looking at the past I would expect to see the Class 3 price move back toward the $14.25 to $15.00/cwt range near the end of this cycle, at which time, we will start all over again.
Updated 24 week price forecast
You can check out my just updated 24-week price forecast available on my website at:
http://aede.osu.edu/programs/ohiodairy/quickchart/nass52.htm. This forecast is based on the assumption that the rate of growth in milk production will continue to decline at a rate sufficient to bring total supply back into balance with demand.
Impact of Human-Animal Interactions on Farm Animal Behavior, Welfare, and Productivity
Dr. Naomi Botheras, Animal Welfare Extension Specialist, The Ohio State University
Extensive research in a number of livestock industries around the world has identified the impact of the interactions between stockpeople (animal handlers) and farm animals on farm animal behavior, welfare, and productivity. Specifically, relationships between the animal's fear of humans and productivity of animals have been found in the dairy industry, and also in the egg, meat chicken, and pig industries. Significant sequential relationships have also been found in the dairy industry between the stockperson's attitudes and behavior toward animals and the behavioral response of farm animals to humans (i.e., fear of humans). This relationship is depicted in the model in Figure 1.
Figure 1. A model of human-animal interactions.
While the impact of these human characteristics (attitudes and behavior) on animal productivity and welfare has been documented, human-animal interactions have also been shown to impact on other important job-related characteristics (Figure 2). Job satisfaction, work ethic, and motivation to learn may affect stockperson work performance, and thus also affect animal productivity and welfare. For example, during situations in which the attitude and behavior of a stockperson towards the animals are negative, the stockperson's commitment to the surveillance of, and the attendance to, welfare and production issues is questionable. Ultimately, lack of job satisfaction due to the working conditions created by poor human-animal interactions may affect staff retention. Thus, the attitudes and behavior of stockpeople may have marked effects on animal productivity and welfare, both directly via fear of humans by the animal, and indirectly via work performance of the stockperson.
Figure 2. Job-related characteristics may also be affected by human-animal interactions.
In Australia, the newly revised "Model Code of Practice for the Welfare of Animals: Pigs" recognizes that good stockmanship is the key factor to good animal welfare, because no matter how otherwise acceptable a system may be in principle, without competent, diligent stockmanship, the welfare of animals cannot be adequately addressed. Hence, stockmanship is at the core of the revised Model Code, and the Code will propose new stockperson and staff training and verification measures to ensure good stockmanship and care for animals. In the U.S., the importance of good stockmanship and stockperson training is recognized in many of the animal welfare audit and assessment programs which have been developed for the dairy industry. For example, in the FIVE-STAR Dairy Quality AssuranceSMprogram, the very first quality control point deals with producer and employee attitudes, knowledge, and competencies, and stresses the importance of training about appropriate animal handling.
Training of stockpeople as professional managers of animals has generally been ignored. In recognition of the vital role that stockpeople play in the overall health, welfare, and productivity of the animals under their care and control, the Australian Animal Welfare Science Centre has developed Professional Handling (ProHand) training packages for stockpeople in the livestock industries, including the dairy industry. ProHand Dairy Cows targets the attitudes and behaviors of stockpeople, resulting in improved productivity and animal welfare. ProHand Dairy Cows is a validated training program that has been shown to be a very effective and specific tool for training stockpeople to minimize handling stress and improve both animal performance and welfare, through improvement of the quality of human-animal interactions.
The ProHand Dairy Cows training program aims to:
- Develop an understanding of the impact of the interactions between stockpeople and farm animals on farm animal behavior, welfare, and productivity,
- Outline why farm animals become fearful of humans and how this fear can markedly affect animal productivity and welfare,
- Identify appropriate and inappropriate behaviors of stockpeople towards farm animals,
- Demonstrate how to recognize fear in farm animals, and
- Provide professional handling guidelines, which are designed to maximize animal productivity and welfare, as well as to ensure that farm animals are easy to handle, move, and milk.
Benefits following training include up to a 5% increase in milk yield, improvements in ease of handling and milking cows, and improved job satisfaction and work ethic, all without additional capital investment.
In collaboration with the Animal Welfare Science Centre, The Ohio State University is introducing ProHand Dairy Cows training programs for stockpeople on Ohio dairy farms. If you would like to receive further information about these training programs or to enroll for training, please contact Naomi at (614) 292-3776 or firstname.lastname@example.org.
More Milk - Good for Me? Good for Our Industry?
Dr. Mark Armfelt, DVM, DABVP, Technical Service Representative, Monsanto Dairy Business
"Doc, if I implement your suggestion, I will put more milk on the market and that will lower milk price. What good does that do me?" This is a question I have heard many times over the 23 years I was in practice and the 6 years I have worked in industry. The change we are discussing might be 3X milking, long day lighting, or use of Posilac® (Monsanto Dairy Business, St. Louis, MO). Let's take a closer look at what implementing one of these practices means for the dairy, as well as its effects on milk price and our industry.
First, let me acknowledge that when a dairy farm implements any of the changes mentioned above, they do put more milk in the bulk tank and more milk on the market. That also holds true for other production enhancing practices, such as feeding balanced rations, cooling cows in summer, selecting superior genetics, and many other practices we take for granted every day. I believe that more milk per cow is a good thing for that dairy farm.
Everyone knows the number of dairy farms in the country is declining. When I was a senior in high school, Neil Armstrong walked on the moon and there were 10 times as many dairy farms in the country as there are today. If you are in the dairy business today, "Congratulations", you have beaten some significant odds. Dairy farms that have survived and thrived are farms that simply have money left in the checkbook at the end of the month. And more is better! To quote Dr. John Fetrow at the University of Minnesota, College of Veterinary Medicine, this can be accomplished in two ways. "First, make more milk. Second, cut expenses if that can be accomplished without a loss in production." I know this is a little bit oversimplified, but it holds true a vast majority of the time.
When a dairy farm increases the amount of milk they sell from each cow, a smaller percentage of their milk check goes to pay monthly bills and more is left for discretionary spending. That is and always will be good for that farm, if they want to stay in business. If he or she chooses not to implement my suggestion (e.g. does not sell the extra milk and the milk price does not change), it merely puts that farm at a disadvantage in the market place. As we see in Figure 1, the amount of milk per cow has increased at the rate of about 250 lb per cow per year for the past 45 years. Milk price has fluctuated up and down in spite of that constant increase.
Figure 1. Changes in milk production per cow, genetic gain, and Class III milk price from 1959 to 2004 (Cady, 2005).
Since milk is sold into a simple supply and demand market, we have to look at both sides of this equation. First, let's look at the supply of milk. If more milk per cow does not set the price of milk, what does? I submit the answer lies in how many cows are in production. This is determined by how dairy farmers respond to milk prices.
When the price of milk is $17.00/cwt, most dairy farmers I work with will keep some cows in production that they would sell if milk were $12.00/cwt. Typically, these cows are low producers, not bred, have a higher somatic cell count, or for some other reason will soon be culled. When milk price is high, the dairy farmer is willing to keep cows in the herd a while longer to capture the additional milk at high value. When dairy farmers do this, there is an increased amount of milk going into the market. When milk volume increases to the point whereby we are oversupplying the market by about 1%, the milk price goes down. When the milk price goes down, dairy farmers will sell those marginal cows, and the supply finally goes below demand and milk price goes up, and the cycle starts again. It is changes in cow numbers that determines milk price.
Figure 2. Changes in numbers of cows and milk price from 1998 to 2006 (USDA, NASS, 2005).
Figure 2 provides the all-milk price as compared to changes in cow numbers. The average decrease in cow numbers during the last 10 years is about 0.5% annually, indicated by the dark line in Figure 2. We see a very strong inverse relationship between milk price and cow numbers above and below that line. According to Peter Vitaliano, Vice President, Economic Policy and Market Research, National Milk Producers Federation, the primary reason the all-milk price did not fall as dramatically as one might expect when cow numbers rose in 2005 was a 3.7% increase in consumption that year.
We must recognize as well the importance of the demand side of the equation. There are great resources going into research and development of new dairy food products which are attractive to diverse consumer groups. This includes specialty cheeses, on-the-go snacks like yogurt in a tube, and new milk-based sport drinks. The nutrition and health advantages of dairy products for the consumer are becoming better documented and will also help overall consumption trends.
Fifty years ago, there were 12 million cows in the country; today there are 9 million. Total milk consumption has increased almost 50% in those 50 years, and today's dairy farmers are meeting that demand with 25% fewer cows! The increases we have seen in milk per cow have helped today's dairy farmer compete in a global economy and have softened the impact of the dairy industry on the environment.
What happens when dairy farmers make good decisions to increase the amount of milk produced by each cow? It helps the individual dairy farm's profitability, keeps them competitive in a consolidating industry, and reduces the farm's impact on the environment. That is good for the dairy farm, our dairy industry, our end consumers, and the world.
Information from the U.S. Equal Employment Opportunity Commission on Employing Teenagers
Mr. John Wargowsky, Executive Director - Mid American Ag and Hort Services, Inc. and Director, Labor Services - Ohio Farm Bureau Federation, Inc.
The U.S. Equal Employment Opportunity Commission (EEOC) recently offered tips to companies that employ teenagers and called on the employer community to promote fair, inclusive, and discrimination-free workplaces for millions of young people. At the height of last summer (July 2005), more than 7 million young people age 16 to19 joined the U.S. workforce, according to the U.S. Department of Labor. The EEOC encourages industries to create an environment in which young workers can learn, develop, and thrive. The EEOC says the next generation of workers will carry the lessons you share throughout their careers. The EEOC offered employers the following tips to promote voluntary compliance and prevent harassment and discrimination cases involving young workers:
- Encourage open, positive, and respectful interactions with young workers,
- Remember that awareness, through early education and communication, is the key to prevention,
- Establish a strong corporate policy for handling complaints,
- Provide alternate avenues to report complaints and identify appropriate staff to contact,
- Encourage young workers to come forward with concerns and protect employees who report problems or otherwise participate in EEO investigations from retaliation,
- Post company policies on discrimination and complaint processing in visible locations, such as near the time clock or break area, or include the information with a young worker's first paycheck,
- Clearly communicate, update and reinforce discrimination policies and procedures in a language and manner young workers can understand,
- Provide early training to managers and employees, especially front-line supervisors, and
- Consider hosting an information seminar for the parents or guardians of teens working for the organization.
From Weaning to Freshening, Dairy Heifer Care and Management Workshop: Fun for the Serious Heifer Raiser
Mrs. Dianne Shoemaker, Dairy Extension Specialist, OSU Extension
The future of every successful dairy operation depends on a steady supply of healthy, productive replacement heifers calving between 22 and 24 months of age. If the dairy is not expanding, sales of excess heifers should be an additional revenue stream for the farm. If the farm is raising replacement heifers for others, producing healthy, productive animals is essential to the long-term success of the custom heifer enterprise.
This intense, 2-day workshop picks up where the Neonatal Calf Care and Management Workshop left off in March. Participants will focus on understanding and managing the heifer from weaning through the pre-fresh period. Sessions on October 31 and November 1 include:
1) Growth and nutrition,
2) Health diagnosis, treatment, and prevention,
3) Managing the heifer enterprise,
4) Housing heifers,
5) Designing safe and efficient handling systems,
6) Successful reproduction, and
Hands-on labs include:
1) Up close with reproductive tracts,
2) Successful heat detection and use of heat detection tools, and
3) Measuring and tracking growth.
For the people working with heifers, it is highly rewarding to work with barns full of healthy, content heifers that grow well and settle to the first service. Dealing with chronic morbidity, mortality, and bred-but-open heifers is discouraging for the people working with the heifers and unprofitable as well as unsustainable for the farm.
At an average total cost of $2 a day to raise bred heifers, each month a heifer is open after 22 months of age costs the farm at least $60. Getting heifers grown and bred to calve by 22 to 24 months of age will produce an animal that is generating net income, not costing the dairy business money.
The Heifer Care and Management Workshop is designed for heifer managers and care-givers who are dedicated to doing the best job possible raising their heifers. It will be held near Wooster on the campus of the Ohio Agricultural Research and Development Center. A detailed agenda and registration materials are available to download at https://dairy.osu.edu or by contacting Dianne Shoemaker at (330) 263-3799. Register early as class size will be limited to assure plenty of hands-on experiences for participants.
2007 Neonatal Calf Care and Management Workshops
Mrs. Dianne Shoemaker, Dairy Extension Specialist, OSU Extension
There will be two sessions of the Neonatal Calf Care and Management Workshop offered in 2007. The date and location of the first session will be announced in November. This session will be similar to the March 2006 workshop. The second session, scheduled for March 20 and 21 at OARDC, will focus on new topics. Watch the https://dairy.osu.edu web site in October for more information.
Worker's Compensation 1K Program Expands to 5K
Mrs. Dianne Shoemaker, Dairy Extension Specialist, OSU Extension
Worker's Compensation Insurance coverage is designed to protect employees. It is not optional and represents a significant expense for Ohio's farm businesses. Premium costs can reach 25% of gross payroll without careful management. Each farm business must make employee safety a priority. Proper training and maintenance are critical investments towards achieving a safe workplace.
Other tools to minimize Worker's Compensation premiums are available to all farm businesses and have been discussed in previous issues of the Ohio Ag Manager Newsletter. Recent passage of Senate Bill 7 increased the payment limit in the $1,000 Medical-Only or 1K Program. Claims with a date of injury occurring on or after June 30, 2006, will now fall under the $5,000 Medical-Only or 5K Program.
An employer must be enrolled in the program before a claim occurs. Once enrolled and if an accident occurs, an employer can pay all medical expenses up to $5,000 if no more than 7 days of work are lost. An employer has the option of telling the Bureau of Worker's Compensation that it does not wish to pay the medical bills for a particular claim and allow it to follow the regular claim process through their designated MCO (managed care organization).
If the employer chooses to pay the medical bills for a qualifying accident, the accident will not be part of the employer's Worker's Compensation claim history. This claim history is used to determine eligibility for and discount level of group rating program participation. Claims involving more than $5,000 of medical expenses or 7 days of lost work time must go through the regular Worker's Compensation claim process. Follow this link to find more detailed information on this program:
Human Resource Managers' Forum Will Feature Job Description and At-Will Employment Guidance
Mid American Ag and Hort Services (MAAHS) is pleased to announce the fifth Ohio Ag and Hort Human Resource Managers' Forum for fostering professional development and advancing effective human resource practices for human resource managers in agricultural and horticultural businesses. The Forum will be held Wednesday, November 8 at the Franklin County Farm Bureau office in Hilliard, Ohio from 10:00 a.m. to 2:30 p.m.
The featured topic at the Forum will be "The Value and Common Sense of Job Descriptions," presented by Dr. Bernie Erven of Erven Human Resource Services, LLC. Dr. Erven has 35 years of experience in teaching, Extension, and research focusing on employee management and family business relations.
In the afternoon, Ms. Cheryl Basinger with Competitive Edge Human Resources will present "Employment-At-Will Issues." Ms. Basinger has a 25-year track record of success in diverse assignments in human resources, sales, and marketing. The program will include opportunities for open discussion and networking for those with human resource responsibilities in agriculture and horticulture businesses.
The registration fee of $50 for MAAHS members and $70 for non-MAAHS members includes lunch and materials. Participation in the Forum is limited to the first 40 registrants and reservations are requested by November 1. Contact MAAHS at 614-246-8286, email@example.com, or visit www.midamservices.org for more information.
Resignation of Andy Spring as OSU Dairy Farm Manger After 27 Years
Dr. Maurice Eastridge, Dairy Extension Specialist, The Ohio State University
Andy Spring, Dairy Farm Manager at the OSU Waterman farm in Columbus, accepted a Research Assistant position with the OSU Department of Horticulture and Crop Science and the position will be located at the Waterman Headquarters Building. Andy has served as the Farm Manager for 27 years and will be deeply missed for his collegiality, astute management of the dairy facility, and his being a mentor for students. His last working day at the dairy farm was Friday, September 29. We wish Andy the best in his new position.
Dairy Youth Compete in Events During the Ohio State Fair
Ms. Laurie Winkelman, Dairy Program Specialist, The Ohio State University
Dairy youth from throughout Ohio competed in two major events during the Ohio State Fair in August. All dairy youth had the opportunity to participate in Dairy Skillathons and Dairy Judging Clinics, both offered twice during the Fair.
Skillathon participants were tested on their knowledge of nutrition and feeds, genetics and pedigrees, management tool identification, and diseases. During both weeks of the Fair, 71 youth completed the Skillathon. Awards, sponsored by Toyota Trucks and the Ohio State Fair, were presented to the winners in each age division.
Taking home top honors in the Dairy Skillathon included (Pictures 1 and 2): Morgan Eades, age 9, Champaign Co.; Dianne Gress, age 10, Wayne Co.; Hillary Jackson, age 11, Logan Co.; Eileen Gress, age 12, Wayne Co.; Rachel Townsley, age 13, Champaign Co.; Ashlee Dietz, age 14, Trumbull Co.; Laura Gordon, age 15, Wayne Co.; Kaleb Kohler, age 16, Fairfield Co.; Matt Weeman, age 17, Wayne Co.; and Sherri Gress, age 18, Wayne Co. Receiving the highest score overall in the Skillathon was Sherri Gress from Wayne Co.
Picture 1. Taking home top honors overall in the 2006 Dairy Skillathon was Sherri Gress of Wayne Co.
Pictured from left to right are: Laurie Winkelman from OSU, Gress, and Dr. Maurice Eastridge from OSU.
Picture 2. Age division winners received special awards sponsored by Toyota Trucks and the Ohio State Fair.
Pictured from left to right are: Laurie Winkelman from OSU, Laura Gordon - Wayne Co., Sherri Gress - Wayne Co.,
Eileen Gress - Wayne Co., Diane Gress - Wayne Co., Matt Weeman - Wayne Co., and Ashlee Dietz - Trumbull Co.
Dairy judging clinics were held during both weeks of the Fair, and scores from both weeks were totaled together to name the top dairy judges in the Junior and Senior Divisions. A total of 44 juniors and 22 seniors participated in one or both of the clinics. The top 10 individuals in the junior and senior divisions are listed below.
1. Michelle Funk
2. Taylor Justice
3. Ben Klier
4. Tanner Topp
5. Ashlee Dietz
6. Nick Fugate
7. Tessa Topp
8. Matthew Arp
9. Tyler Topp
10. Brennan Topp
1. Neil Duncan
2. Sherri Gress
3. Kaleb Kohler
4. Amanda Hoover
5. Laura Gordon
6. Tom Grim
7. Matt Weeman
8. John Neider
9. Jason Miley
10. Joel Bourne