VOLUME XVII, NO. 12

DECEMBER 2008

2009 May Be a Year of Adjustments

NRCS asks farmers with contracts to contact local NRCS office

Alva Carter Sr.

Black Friday turns blue for consumers and retailers

Farm audits begin mid December

DFA CEO Smith covers various topics in short time at SWAC meeting

Dutch turbines milk the air for power and big bucks

Bunk house good to sleep 8

2009 May Be a Year of Adjustments

By David P. Anderson

High milk prices in 2007 and part of 2008 helped milk producers cope with higher feed costs. But, production increases and the slumping economy have since taken their toll on milk prices. It looks like 2009 is going to be a year of adjustments to high feed costs, lower milk prices, and the poor world economy.
Texas Continues Growth

The boom in Texas Panhandle milk production continued throughout 2008. Texas had 388,000 milk cows in October, 2008 (the latest data at this writing). That was the most milk cows since January, 1997 and the most for an October since 1996. Texas was the 7th largest milk producing state. Texas and New Mexico combined is the U.S.’s the 3rd largest milk producing region, after only California and Wisconsin.

Milk prices boomed in 2007 and into 2008 due to growth in exports as supplies from other exporters declined and U.S. and global growth boosted demand. While feed prices increased to record levels, higher milk prices insulated producers from some of the pain.

But, typically, profitable prices encouraged increased production. Milk production in 2008 totaled about 190 billion pounds, about 2.4 percent more than in 2007. But, by the end of the year, the number of milk cows had begun to decline and milk production per cow slowed to the same level as in 2007.
What About 2009?

“Uncertainty and adjustment” probably sum up expectations for 2009. It would appear that high feed prices, at least by historical standards, are going to continue. But, feed prices have fallen sharply from the highs of the summer of 2008. Ethanol plant’s profitability, mandated ethanol use, fertilizer prices, and, of course, the weather will determine feed prices in 2009.

The health of the world’s economy, including our own, will determine the overall state of milk demand. Exports relied on the weak dollar, booming economies, and short supplies in other countries. A strengthening dollar and world economies in recession will act to restrain demand.

Milk production growth in 2009 will continue to slow as the number of dairy cows is reduced and milk production per cow growth slows. Production will total close to that produced in 2008.

Non-fat dry milk powder and whey prices had declined more than 50 percent, year-over-year by November 2008. It will take production cuts and better demand to increase prices significantly. Even with strong butter and cheese prices, milk prices will be pressured well into 2009. Class III milk will probably be in the $14.00 per cwt range early in 2009. All milk prices may average around $16.00 for the year.
Summary

Profitable milk prices will require some economic recovery and reduced milk supplies. Lower feed prices and feed production costs that remain over the course of the year would help bottom lines, as well. As with other commodities the overall economy may be the biggest wildcard and key to growth in 2009.

David P. Anderson is Professor & Extension Economist, Livestock and Food Products Marketing, Texas AgriLife Extension Service

NRCS asks farmers with contracts to contact local NRCS office

The USDA Natural Resources Conservation Service (NRCS) has undertaken a voluntary audit to ensure conservation programs have been applied in a manner consistent with program policy. A private firm has undertaken this massive national effort of which part of that review includes Environmental Quality Incentives Program (EQUIP) and other easement programs administered by the Agency. Consequently, NRCS is reviewing each and every contract that has conservation practices yet to apply.

It is important to note that current contract holders with equip funding are not the reason for the audit, nor are any contracts to be cancelled without consent of the program participant, unless there is a program violation. Most program violations have already been addressed by our field personnel and have been corrected. Program participants with outstanding fund balances in their contracts will more than likely be contacted by NRCS in the near future but those who are on schedule with their conservation plan may not be contacted.

The NRCS asks for your patience and understanding during this time if you are contacted. This audit does not change the overall manner in which NRCS has operated their programs in the past. NRCS recommends that if you have any concerns regarding your contract, that you contact your local District Conservationist for more information.

Alva Carter Sr.

Black Friday turns blue for consumers and retailers

The traditional “Black Friday” that officially kicks off holiday season shopping may have been better than expected but analysts warn the temporary boost in sales may not be enough to pull some flailing retailers out of the red. Analysts are still sticking to original predictions that 2008 may be the worst holiday shopping season in 25 years.

Few can deny the joy of the Christmas season and the wonderful sensation that envelopes people when they see the ornamental efforts displayed in department stores often accompanied by cheery Christmas music. Shoppers still full of turkey and dressing have traditionally awoke early on the day following Thanksgiving to eagerly hit the shopping malls for specialty items, bargains and sales. Some stores open as early as 5 a.m., offering donuts and coffee to anxious shoppers, while others stay open to midnight to entice consumers to “shop ‘til they drop.”

But, even the most well thought out promotional strategies are not working as well as one would like and shoppers are just not falling for the usual shopping “teasers” this year. The financial climate of 2008 has taken its toll and forced a reality check on consumers that throws a wrench into holiday spending.

Up until now, a good percentage of the American public has been spoiled to getting what they want, when they want it, with no questions asked. This is especially true at Christmas when the frivolous holiday spirit overrides any common sense and the temptation prompted by that familiar little plastic card keeps beckoning us to “spend, spend, spend,” making life very easy for the moment.

But, people are seriously trying to avoid a 2009 financial hangover and the old saying “if you can’t pay cash for it, then you don’t need it,” is beginning to make sense. Some folks are avoiding the “buy now, pay later” trend promoted by the convenience of credit cards with high interest rates and instead paying cash when possible that encourages obvious spending limitations.

Surveys report shoppers are holding onto their pocketbooks this year and even though Black Friday created a spike in retail spending, analyst warn of a false sense of hope. Surveys report Saturday and over-the-weekend shopping after Thanksgiving was light and shopping lists appeared shorter. A shorter shopping list indicates shoppers may finish earlier, leaving stores in a lurch to push holiday merchandise.
Reports also show shoppers are more deliberate in their spending, aiming at certain items only, and avoiding browsing that leads to increased spending.

But, some retailers remain optimistic and hope procrastinators and those who are saving their dollars up to the last minute will suddenly appear right before Christmas to buy gifts and shop for New Year items.
Higher food prices, soaring utility bills, the decline in the housing market and bank failures has caused an adverse effect on consumer spending. All of this is further augmented by a steadily increasing unemployment rate that is at an all time high.

High gasoline prices and recent 2008 hurricanes Gustav, Hanna and Ike impacted sales before the holiday season got off to a good start. People are still suffering the effects from paying skyscraping gasoline prices last summer although it has dropped considerably in recent months.

The stark reality is shoppers have been forced to make changes and adjustments in their budgets and handle holiday shopping differently. Some are swapping holiday spending sprees for more boring, yet sensible initiatives that keep them out of the luxury stores and reigns in any desire for high dollar Christmas vacation get-aways.

For whatever reasons, less spending by consumers plays havoc with retailers and many suburban malls are facing shutdowns. Same store (stores that are open for at least one year) sales is a basic measurement for retail security that has dropped dramatically. Stein Mart, Dillard, J.C. Penney, and Khol’s, have all shown decreases over last year’s retail sales. Even everyone’s favorite store, Target, has declined 10 percent.

The only items people seem to be buying are in must-have categories like food and children’s clothing. The weakest category of buying is in nonessential items such as housewares, furniture, electronics, jewelry and women’s apparel.

Warehouse stores that sell in bulk quantities are the only bright spots including such stores as Costco, BJ Wholesale Club, and Wal-Mart.

But, all is not as gloomy as it may seem and no one is saying Christmas should be abandoned. In fact, this downward trend of shopping for store gifts may have a worthy effect that forces families to be more creative with their Christmas activities and gift-giving.

This year, folks may need to concentrate on what can be done to make Christmas just as enjoyable without all the expensive fluff. Economists suggest several ways to save during the Holiday season, like preparing home cooked meals instead of eating out, and forget about changing the theme on this year’s tree by reinventing last year’s decorations.

Gift-giving is the biggest expense if you buy for everyone in your family. Try buying less expensive gifts or set a limit and stick to it. Draw names among family members or buy family gifts instead of individual gifts. A fun and entertaining idea for family get-togethers is to organize a Chinese Christmas or a White Elephant gift-giving event that cost little or no money at all.

Farm audits begin mid December

Postmark for bids to be submitted for Cooperatives Working Together (CWT) Herd Retirement Program was Mon., Nov. 24, 2008. An outside auditing firm began reviewing bids on Nov. 25. On Dec. 8-10, bids will be looked over and a final selection will be made. If all goes as scheduled, by Dec. 12, auditors will begin notifying those whose bids have been accepted and on Dec. 15, farm audits will begin.

In order for bids to be accepted, bids were to be accompanied by a milk company printout of monthly milk marketings for the period of Oct. 1, 2007 through Sept. 30, 2008. No cows (or bred heifers if option is selected) should have been sold or transferred after Sept. 30, 2008 (except cows sold for slaughter). Slaughter sales slips must be available to farm auditors in order to reconcile cow and bred heifer numbers at the time of the farm visit to selected bidders.

CWT will send an auditor to each farm whose bid is selected. The auditor will reconcile the cow numbers (and the bred heifer number if that option is selected) and compare the daily milk volume of farm audit date to the 12 month history of milk marketing. He will provide CWT Tamper-Evident ear tags to be applied to each cow (including heifers that have calved prior to the farm visit) and ( bred heifers if option is selected).

Selected bidders will do as follows:

1) Arrange transport of all cows (and bred heifers if option is selected) to slaughter or sale barn for sale to slaughter plants after approval from the farm auditor. 2) Cows must be marketed 1-15 days after completion of farm audit. (A reasonable extension will be granted for dry cows that have been treated and subject to a market withholding period.) Note: Bidders will retain the slaughter value of all animals the producer sells for slaughter. 3) If bred heifer option is selected, these animals should not be treated. Treated bred heifers will be disqualified and no payment made. 4) Agree to maintain all animals as prescribed in Top 10 Considerations for Culling and Transporting Dairy Cows to a Packing or Processing Facility and milk all cows prior to being transported. 5) Dispose by other legal means, any non-ambulatory animals or animals too weak for transport, and shall return the ear tags that had been affixed to such animals to CWT.

Promptly after the sale of the cows (and bred heifers if option is selected), producer must provide CWT with documents verifying the sale. Producer shall retain all proceeds from the sale of cows (and bred heifers if option is selected).

After CWT receives documentation of the sale of the cows, CWT shall pay the producers as follows:

1. For cows that are not Bred Heifer: an amount equal to the Bid Price submitted by the Producer on form HR2008-2 multiplied by the Producer's verified milk volume also provided by the Producer on form HR2008-2 for the period of October 1, 2007 through September 30, 2008.

2. For Bred Heifers: if Producer has elected to participate in the Bred Heifer Option, an amount equal to the number of bred heifers determined by CWT to meet program requirements, multiplied by the Payment Amount specified on CWT Form BH2008-2.

CWT may be contacted at 888-463-6298 or info@cwt.coop

DFA CEO Smith covers various topics in short time at SWAC meeting

Dairy Farmers of America (DFA) CEO and President Rick Smith has made a commitment to get face-to-face with the Cooperative’s 18,000 members. Although Smith’s busy schedule does not always allow him to spend a great deal of time at member meetings, he managed to touch briefly on a wide area of topics in a short time when speaking to members, suppliers and guests at the cooperative’s Southwest Area Council (SWAC) Industry Update Meeting held in Glen Rose, Texas, on Nov. 18.

More than 170 dairy producers from the cooperative’s Texas and New Mexico region attended the day-long SWAC meeting that featured an update from Smith and presentations from several other speakers who discussed everything from DFA’s international development program to an in-depth report on the cooperative’s financial health.

Smith talked about the dramatic changes DFA has made in the past couple of years. Among these changes, he noted successful efforts to eliminate unnecessary expenditures. The cooperative increased discipline in operations, coordinated supply chain management, closed plants and exited joint ventures that did not bring the necessary returns on the farmers’ investment. Among plants closed was the Lovington, NM, facility.

He talked about some of the challenges the cooperative faced including the discovery of a $1 million dollar unauthorized transaction between former DFA CEO Gary Hanman and former Chairman Herman Brubaker. The transaction was discovered in early 2008, after Smith took the helm of the cooperative, and has been repaid to DFA.

Smith also spoke about efforts to resolve old, but pending cooperative issues. These include a settlement with the IRS, an investigation by the Department of Justice that was resolved and an ongoing investigation by the Commodity Futures Trading Commission (CFTC) which is looking into DFA’s past activity on the Chicago Mercantile Exchange (CME).

Smith noted the management team and DFA’s corporate board have moved beyond these pending matters and are have focused on the future of the cooperative and positive projects that will post record sales this year.

Smith also spoke on the importance of DFA members to the Cooperative’s overall success. He made it clear the diversity of DFA’s membership---- dairies that range from 10 cow to 15,000 cow operations---each play a vital role to the cooperative’s wellbeing. To assist members, DFA has created a formal Farm Services division that brings programs to members including forward contracting, health and workers’ compensation insurance, bulk buying programs, dairy energy services, and more.

While Smith did not go over predictions for milk prices in 2009, he recognized that dairymen are concerned for the drop that has occurred in the latter part of 2008. The current net mailbox price is about $16.50 whereas it was about $20 at the beginning of the year. DFA’s Farm Services was created to assist members in better managing their profit margins. He said the uncertainty of today’s market is volatile and unstable which makes it difficult to determine cost of production. He told members that even though some inputs have increased, such as oil and corn prices, each producer’s situation is different.

Dairymen who commented on Smith’s presentation seemed pleased with his enthusiastic and energetic approach to solving DFA issues, both past and present. Smith reiterated to members the importance of the transparency philosophy he embraces and DFA is moving forward to promote openness and strengthen integrity to the nation’s largest milk cooperative.

Wayne Palla, a dairyman from Clovis, New Mexico and chairman of the Southwest Area Council emceed the event and recognized producers Charles Beckendorf of Tomball, Texas and Pete Schouten of Hico, Texas for their years of service. Both men are retiring from the SWAC of DFA at the end of the year.

Other presenters included Joel Clark, DFA’s senior vice president of accounting who provided a financial update; Jay Waldvogel, DFA’s vice president of strategy and international development who spoke about world markets and the Cooperative’s place in them; John Wilson, DFA’s senior vice president of marketing and industry affairs who talked about milk markets and Terry Barr, interim president and chief economist, agriculture and trade policy for the National Council of Farmer Cooperatives.

SWAC’s Industry Update Meeting is held periodically to provide DFA members and members of the agricultural and business communities an opportunity to receive updates on the cooperative and industry. Immediately following the update meeting, the SWAC held their meeting, open to all DFA members. Member meetings are held frequently throughout the year.

Dutch turbines milk the air for power and big bucks

When people think of windmills, they automatically picture Holland where the lush green countryside is dotted with these necessary and workable sources of power. “It is part of our culture,” said JoHan LeLeum, whose family farm has an ancient Dutch wind turbine that dates back to 1740. “We learned over 200 years ago that we could count on wind turbines to pump our water, grind our grain, and in recent years, provide our electricity.”

Over the years, hardworking and conservative Dutch farmers have made a practice of putting into operation what works best for their purposes. But, you don’t have to travel to Holland to enjoy the benefits of a Dutch manufactured wind turbine.

“We have them available just a short distance away,” said Ben B. Boothe, Sr., CEO of Wind, Inc. located in Aledo, Texas.

Wind, Inc. contracts with Wind Energy Solutions (WES) of Ompeer, Netherlands, for commercial turbines and with Solar and Wind Energy Applications (SWEA) of Den Bosch, Netherlands, for residential turbines.

“The United States is experiencing a shortage of domestically manufactured wind turbines,” Boothe said. “Wind, Inc. currently has more access and availability to wind turbines than anyone domestically because of these exciting contracts with two of the leading international manufacturers.”

Boothe has recently shown special interest in the Tri-county dairy industry that includes Erath, Hamilton and Comanche counties. He plans to meet with the Texas Association of Dairymen (TAD) at their board meeting in December to discuss wind power as an alternative energy source and the advantages he can offer them from Wind, Inc.

Booth explained his company makes a Dutch wind turbine especially designed for dairy, feeder and cattle use. “It can produce $12,000 to $25,000 per month in electricity, and over a 10-year period can make $6 million dollars worth of power,” he said.

“This does not include the tax advantages that are good, and get even better with the new administration. Obama has pledged $150 billion dollars in grants, tax breaks, and incentives for those who purchase wind turbines.”

Boothe pointed out that for a farmer, feeder or dairyman, this is one of the few equipment investments that will actually make money every year for the next 20 years.

“Consider this: what if your dairy could put up a turbine and have no electric bill? Our concept is to let the farmer own the turbine, get all of the tax breaks and rewards---and not ‘just lease’ his land.”

The wind energy industry is the fastest growing industry in the USA. It is anticipated consumers, small businesses, and large industries will use wind energy in larger and larger volumes in the future.

As established energy rates continue to escalate, Boothe said wind turbine units will become an even more valuable and more cost-effective option for acquiring and fulfilling power needs.

What does a wind turbine actually do?

1. It will produce clean energy with virtually no pollution (helping our global environment).

2. The energy it produces does not need to be “refined,” “trucked,” or “stored in tank farms,” but is clean, pure electricity.

3. As energy rates go up, these units have become true money makers.

4. Tax breaks, government incentives, deductions, all create another true advantage to windmills.

5. Wind turbines can increase value and utility for any farm or real estate.

Wind, Inc.’s mission is to bring cutting-edge wind technology to the Fort Worth area and the nation in an effort to provide an environmentally conscious solution to traditional energy resources.

“Delivery of the alternative energy turbines ranges from 30 to 90 days. With cities such as Harlingen, McAllen, Austin, Lamesa, Amarillo, Lubbock, Sweetwater, and Fort Worth, all supporting ‘make our city green’ by use of alternative energy systems, Wind, Inc., has arrived with the proper products at the proper time,” Boothe said.

"Recently Weatherford, Texas, saw electricity rates double in one week. Houston residents report rates up nearly 40% in 12 months. More and more individuals, cities and municipalities will be using individual wind turbines for back-up."

Bunk house good to sleep 8

Dairies of considerable size often employ workers who must work and live on the dairy premises. Since a dairy is a 24-7 operation, it is convenient to house workers on site who can be at the dairy in a matter of minutes, if not sooner. When equipment breaks down or it is time for a milking shift change, workers are required to be “Johnny on the spot.”

Dairy owners like to provide adequate and suitable housing for their workers and their families. A good accommodation creates a better working environment and provides a form of job security for the employer and employee. But, housing can be expensive and is sometimes a problem. For single workers, it can be especially costly for employers who normally house two workers to each house.

Granbury Housing recently introduced a new bunk house design for dairies that is both efficient and cost effective. The bunk house is a 1,165 sq. ft. factory-built home designed to easily accommodate sleeping and living arrangements for 8 workers. The brand new design has four bedrooms, two showers, refrigerator, stove, dishwasher and a large adjoining living room for all to share.

The company is fast becoming known for its new and innovative approach for serving the housing needs of American families. The new bunkhouse is one of many special-built Legacy homes that has a genuine purpose in mind and proves to be affordable and thousands less than similar floor plans from major competitors.

Some large dairies in the Texas Panhandle are already using bunkhouse style housing and find it to be exactly what they need to solve housing problems. The idea for this kind of housing comes from the Old West days where ranch hands were provided bunk houses so they could live on the ranch. In those days ranches were spread out and it was a long ride into town. The convenience of working and living on the ranch was a benefit for everyone.

Granbury Housing is a frontrunner in the new bunkhouse design. It may be so appealing, you might want to purchase one today. As 2008 comes to a close, no one can deny the overall benefit of a good tax write off.

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Sherry Webb, Publisher

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