Manitowoc — “You need to a be just a little bit better than the rest of your competition around the world.”
That's the challenge VitaPlus dairy development manager Gary Sipiorski posed to area dairy farmers and Lakeshore Technical College dairy program students at the Manitowoc County Forage Council's annual dairy cattle feeding day at Hochkammer dairy farm.
Instead of the traditional “three-legged stool” symbol associated with dairy farmers, Sipiorski suggested that a four-legged milk stool is the appropriate image today. That's because of the major influence that dairy product exports and competitive milk producing countries around the world have on the price that dairy farmers in the United States receive for their milk.
Reaching the top third
Sipiorski urges dairy farmers to launch themselves into the top one-third in terms of net returns from their dairy operation. During his presentation here, he reviewed many of the elements that determine the bottom line numbers.
As an example of the difference in being in the top one third compared to the overall average on net returns, Sipiorski cited statistics from an accounting firm for 49 dairy herds in Michigan for the second quarter of 2016.
In a state where very high negative producer price differentials have been cutting into milk checks, the 49 Michigan herds had an average loss of 49 cents per hundred (40 cents for the herds with more than 1,500 cows) on their milk production for that second quarter. But he emphasized that the one-third among all the herds enjoyed a 92 cent per hundred net return for the three months.
Bottom line numbers
Using a $1.32 difference per hundred in the bottom line numbers, Sipiorski listed these annual total differences for various herd sizes with cows producing 24,000 pounds of milk per year — $15,840 for 50 cows, $31,680 for 100 cows, $158,400 for 500 cows and $316,800 for 1,000 cows. “What are your numbers?” he asked his audience.
To address the point from another perspective, Sipiorski shared statistics for the first nine months of 2016 from 32 Wisconsin dairy farms collected by VitaPlus colleague Rod Wautlet. In that data set, the per hundred costs of production ranged from $14.28 to $21.68 compared to mailbox milk prices averaging a bit below $16 per hundred for that period.
An accounting firm which serves many dairy herds in California is anticipating that many of its clients will be losing $100 to $200 per cow on their operations in 2016, Sipiorski reported. On that point, he questions why federal statistical reports don't show a greater reduction in cow numbers in California.
Sipiorski traces bottom line financial differences to on-farm practices. One that he pointed to, citing data from Zoetis, is the cost of health problems in dairy herds.
Mastitis, lameness, metritis, retained placentas, ketosis and displace abomasums all result in costs exceeding $100 per incident and involuntary culling rates of 16 to 32 percent for the cows affected with those health problems, according to the Zoetis statistics.
One way to reduce the roster of health challenges is to provide proper education and training for family members and employees, Sipiorski stated. He mentioned the importance of shared values, written job descriptions, and the providing of handbooks.
By Sipiorski's standards, those efforts should keep calf losses below 1 percent, have heifers calving at 22 to 24 months, provide a 21-day breeding rate of 25 percent (32 percent today at Hochkammer dairy), produce milk with a somatic cell count of less than 100,000 per milliliter, enable cows to produce an average of 100 pounds of milk per day and offer comfort to dairy cows at all times.
Growing or buying high quality feed is another essential, Sipiorski stressed. He referred to harvesting timing and practices; packing of forages in bunkers; and feed-out procedures, emphasizing that the 17 percent loss of feed along the way that he has documented is not close to being acceptable. “Do you know your numbers?” he asked in regard to the feed sector.
Financial management is also important. He mentioned the accuracy of year-end balance sheets, budgeting, quarterly monitoring of cash flow, risk management protocols, awareness of potential off-farm investments and working with financial professionals.
Dairy world view
While those factors determine the financial fate of individual dairy farms, it's the world dairy sector, not a local cheese plant, that determines the milk price, Sipiorski observed. Within the United States, there has been a price range of a multiple of 2.5 during the past 20 years, he noted. At the moment, the price is about midway between the $9s to $24s per hundred spread in milk prices since 1996.
World supply and demand have been pivotal in milk prices in the United States within the past decade, Sipiorski pointed out. Current factors in play in the European Union, New Zealand and Australia along with relatively new dairy exporters such as Brazil, Uruguay and Brazil have the potential of boosting milk prices in the United States.
Recent downturns in milk production in the first three locations on that list should open new exporting opportunities for the United States and help to increase milk prices, Sipiorski suggested. He predicted that an end to Russia's ban on dairy and other agricultural product imports from the United States and many European countries (something that might happen under the incoming Trump administration) would by itself tack $2 per hundred onto the milk checks in the United States. Recent upticks in milk powder and whey imports by China are another encouraging sign.
During the past 40 years, there has been a profound change in per capita consumption patterns for dairy products, Sipiorski pointed out. That annual consumption has fallen from 250 to just over 151 pounds for fluid milk while rising from 16 to 34 pounds for cheese.
Regarding milk consumption, Sipiorski commended the Los Angeles school district for, after five years, again giving its students a choice of chocolate and strawberry flavored milk in schools. He noted that discarded containers of low fat white milk accounted for a significant portion of the 600 tons of organic waste being generated every day in the Los Angeles school cafeterias — waste that is being disposed of in landfills.
Within the United States, inventory stocks of butter and American type cheeses are higher than in the previous two years but consumer demand is quite strong, Sipiorski said. He cited the annual increases in milk production in United States during all but three of the past 20 years, including a prediction approaching 217 billion pounds in 2017 compared to the first topping of 200 billion pounds in 2012.