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VOLUME XVIII, NO. 8 |
TEXAS DAIRY REVIEW |
AUGUST 2009 |
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How Can Things Go So Wrong for So Long??? CPA addresses ways to improve producer pay prices STC provides capital & equipment to reduce farmers’ utility costs Stay Nutrient-Rich in Tough Economic Times
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How Can Things Go So Wrong for So Long??? |
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This article is compiled from the thoughts, opinions and ideas of several dairy producers about today’s milk market crisis. Some producers prefer not to be named but their dialogs are included in the story. Much of it however, is narrated by the writer. Milk is our most precious and valuable commodity in today’s world, yet it is taken for granted. The public assumes milk will be on the shelf at a reasonable price when they go to buy it. If it goes up, they may complain----but, they still buy it. Since milk is so obviously important to this nation, why then, are the producers who make it, going broke? Advanced technology and education has allowed the opportunity for dairy producers to reach exceptional goals. In fact, national milk production climbed 55% from 1959 to 2008. However, this stupendous production has peaked so well, producers are producing themselves right out of business. Add to this a sagging world economy, loss of dairy exports, and less than obliging financial institutions, and pure pandemonium sets in. The combination of these elements has dragged 2009 producer pay prices right into the gutter. But, to date little has been offered-up to correct the situation, leaving producers to wonder why it had to get “so bad--- for so long” before their cooperatives started hustling for solutions. Lack of leadership Claiming lack of cooperative leadership to get milk prices back on track, producers are reverting to the same primary question they have asked for years: When and how, as cooperative owners, did they lose control of management professionals who are hired to work in the best interest of its membership?
Dairy Farmer of America (DFA), the nation’s
largest and leading cooperative, concurs member frustration is
understandable in such critical times and with it comes old and new
criticisms. DFA & Feds begin rebound DFA recently announced the establishment of numerous task forces, study committees and utilization of every possible organizational resource to identify short and long term solutions to the dairy crisis. The cooperative recently initiated 5 cents per hundredweight cash payments to southwest members. On a federal level, USDA has expanded the Dairy Product Price Support Program to the end of October. This should boost farm- level income by $243 million. Other USDA steps to help farmers include liquidating 200 million pounds of surplus milk powder; reauthorizing the Dairy Export Incentive Program (DEIP); and expediting the payments under the Milk Income Loss Contract (MILC) program. “Some of this is going to help but when you’re not even getting $11 milk, it’s a long time coming,” said one unhappy producer. “Do they have to wait until we’re completely broke before someone steps in?” he added. Co-ops not off hook Even with federal aid and cooperative efforts to help ease the economic burden, dairymen are not letting their cooperatives off the hook. When the bottom-line brings rock bottom prices, producers become an “endangered species,” caught in uncompromising situations with bankers and creditors while their livelihoods teeter on the brink of disaster. This has them riled for good reason. “So, where was the warning?”asked one young producer from Stephenville. “Saying prices are going to drop ‘some’ is just not good enough.” What IS their job? “Dairymen don’t expect individual attention, but in light of events about to unfold, and with bankers breathing down our necks, a truthful forewarning from the co-ops to ‘pull back or ‘tighten up’ on everything would have been welcomed. Do they expect to let the bankers go ahead and get us? “They have price projections and if they don’t tell us these things, then what is their job?” Producers are irked at lack of overall concern by cooperatives, lack of communication efforts to better inform or prepare producers for the shocking decline in prices and poor management for not providing an emergency plan, among other things. Wiping the slate clean In fact, some producers ponder the thought of wiping the slate clean from top to bottom. They are especially chapped at cooperative executives who draw their paychecks---regardless of the spiraling milk prices and impending doom. “There is no incentive for them to work harder for us. They know they’re going to get a paycheck, so why bother?” they said. Producers entrust co-ops For the most part, producers are not inclined to devise their own marketing schemes, figure component pricing, milk pooling or hauling costs. Most do not want to wade through bureaucratic red tape regulations or politics. Their basic and only desire is to dairy and produce milk. For this, they entrust their respective cooperatives to handle their milk supply from the time it is loaded on the truck until it reaches its destination. This includes deploying whatever bargaining powers the cooperatives posses and everything else it takes to obtain the best mailbox price possible for their members. If overproduction becomes a problem, it is up to the cooperatives to figure a way to get rid of it. That’s not to say many producers are not willing to rise above their own circumstances to take part in a course of action necessary to earn key results to remedy the current crisis. But, that is easier said than done. High feed costs, utilities, labor and fuel are just a few of the major expenses that have them stifled while making cost of production gets more remote each month. Control in the making? Control of some kind is imminent, but motivating producers to produce less is difficult, especially when the concept of dairying is viewed as an independent and free enterprise and no “Dairy Czar” is around to tell producers how much milk they can produce. Although common sense should come into play, it often does not. Unfortunately, the independence and freedom that attracts producers may be the very thing that ends up killing them. “If we don’t learn to control ourselves,” said one Eastern New Mexico producer, “someone else, will. I’m not for a quota or base system, but the cooperatives have tossed the idea around.” Quota draws opposition The idea of a quota or base system draws mixed opinions. One central Texas producer shares his views. “A quota is not the answer,” he said flatly. “A quota is established on your past history’s milk production. Those of us in the North Bosque River have not been able to expand as other dairies or to grow because our hands have been tied by trying to get our permits renewed for more than four years. Although those have finally moved forward, if a quota is based on our past history’s milk production, we’re screwed, “he said. Nova Schouten, partner and owner with her husband, Pete, of a dairy south of Stephenville, said a quota brings about other problems. She pointed out, once a quota is established, it prevents people from getting into the business unless they buy someone else’s quota. “The value of a quota soon becomes a commodity to be traded.” Eugene Norwood, who owns dairies in Star and Pecos, has toyed with the idea of a quota, but fears the worst for the future. “I’m using the sexed semen, just like a lot of other dairymen, and it’s going to create a lot of new heifers. Then we’ll be right back to overproduction,” he said. GSA falls out of favor As with other co-op programs, one that has particularly seemed to have fallen out of favor with producers is the Greater Southwest Agency, (GSA) originally formed in 2003, to balance the milk supply for the southwest area. The agency was an agreement between Select, Zia, Lone Star and DFA. No other coops are tied nationally except for DFA. “It was one big happy family---where a lot of dollars were to be made because everyone would be working together,” said Pete Schouten. But, some producers criticize the program for lack of competiveness and failure to provide a discerning choice for producers, except for a few policy differences that have nothing to do with milk marketing. Are producers aware? In fact, a producer pointed out the agency does not have the bargaining power one is led to believe. Although it is called a milk marketing agency, “it does little more than deliver milk to processors,” he said. Pete said some producers may not be aware the agency does not bargain for milk prices with processors but for over-order premiums, only. |
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CPA addresses ways to improve producer pay prices |
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Genske & Mulder & Company, LLP, a certified public accountant firm, in Costa Mesa, California, represents a clinetele of dairymen who currently produce 12% of the nation’s milk supply in 28 states. Gary Genske, founder and managing partner of the CPA firm, is also partner in a 600-cow dairy in Virginia and a 4,500 dairy in New Mexico. As a producer and having dealt with dairy clients for 36 years, he possesses an in-depth view of existing flaws in the Producer Pay Price System and enforcements and suggestions that will allow for Immediate Improvement to Producer Pay Prices. Here are some of his suggestions: Enforcement of the Pasturized Milk Ordinance (PMO). Strict enforcement of the PMO, a consumer protection law passed in nearly all states, would degrade 1 to 2% of milk produced from Grade A milk to Grade B milk. Any raw milk delivered with a somatic cell count (SCC) greater than 750,000 cells per ML must be degraded to Grade B, lowering its farm pay price. It is estimated milk production would decrease by 1-2% nationwide. Enforcement responsibility of this law lies initially with cooperatives or the handler receiving degrade milk and; ultimately, with each state’s secretary of food and agriculture. Enforcement of the Oversite of Chicago Mercantile Exchange (CME). With only less than 1% of the national milk product sold as cheese through CME, cheese purportedly could be or was not sold through normal marketing channels, dairy producers are directly affected by the prices paid for the cheese by CME buyers. Since the current 2009 milk price crash, it is reported CME cheese activity has been “quite thin” meaning few cheese buyers and fewer sellers; In fact, only a few buyers and there has been only one cheese seller in Jerome, Idaho, to date this year. Nearly all cheese sales through the CME in 2009 have been at or below, the equivalent of the federal support price of $9.90 per hundred weight. The prices paid by the CME cheese buyers are the initial starting price or the basis for the milk price paid on all milk produced in the country. So, (1) Why are so few allowed to create this artificial market which is the basis for all milk prices paid to producers? (2) Who benefits from this price system? (3) Why haven’t our handlers and co-ops corrected this apparent flaw? Enforcement of the oversight is done initially by the CME oversight committee. In the past, the Government Accounting Office (GAO) has conducted its reviews of this CME thinly traded transaction question and found no apparent improprieties. I believe if co-op leadership wants to help its members improve their farm pay prices, this leadership is who producers should insist upon to seek immediate change. Enforcement by FDA. Reported at the recent Dairy 360 Conference, the use of milk protein concentrates(MPCs) and casein (in some products) have not been approved by the Food and Drug Administration and yet these milk components are widely used in the production of cheese and many other food products. Reconstituting condensed milk into whole milk is not legal and heavily regulated, so as “naturally produced” allowed to be reconstituted from (mainly imported) milk components?” The answer: “It should not.” Reportedly, cheese and other products made with MPC’s and casein have less nutritional market value and should not be marketed as a “natural” product. Enforcement action is necessary to avoid the appearance of deception to the buying public. Most all cheese makers now use MPC’s and casein, because the additives increase their yields and ultimately their profits. To the dairy farmer, however, excess cheese means low pay prices. Your co-op leaders have complete control to fix this problem. Change Import Rules to Include MPC’s and Casein as “milk” (long-term improvement to producer pay prices.) Currently, import restrictions exist for imported milk into this country. MPC’s and casein concentrates are excluded from the definition of “milk” for import purposes. Imports of MPC’s and casein have increased 16% year to date, over last year. These imports can be directly linked to increase cheese yields from 11+ pounds to 13+ pounds of cheese per 100 pounds of milk, or an increase of about 18% cheese yield. These imports are therefore directly related to the surplus of cheese inventory currently sold to the government at the $9.90 CWT support price and thinly sold through the CME at less than the support price. Trade restrictions exist to protect American manufacturers from excess imports and market saturization. IDFA and importers of MPC’s have successfully lobbied to have these milk components excluded from the definition of “milk” thereby enhancing their own profits. Most, if not all, major cheese makers should support the milk producers they represent and place the MPC’s and casein within the import restriction as “milk.” Additionally, without correcting this import problem, other plans to enhance producer pay prices will be short lived. USDA Emergency Order – A Ray of Sunshine. In March 2009, the National Family Farm Coalition sent a letter to Tom Vilsack, Secretary of Agriculture, urging him to implement Section 608c (18) of the 1937 Agriculture Act that gives him the authority to set dairy pay prices to reflect dairy farmer’s cost of production. To date only two actions have been taken by USDA: Getting more involved in the Dairy Export Incentive Program (DEIP), and considering a plan to assist farmers with their financing needs. With the dairy farmer situation as it currently exists, one would ask why the Secretary has not addressed solving the other major issues in this article that would really assist the dairy farmers? Neither of the aforementioned actions, as proposed, will have any corrective impact to our industry’s milk pricing problems. The co-op leaders under direction of National Milk Producers Association should have considerably more influence on the emergency orders to USDA. Simply helping with exports and aiding farmers with financing will not improve any of the core pricing problems and will only keep the financial picture for dairymen where it currently is. We have yet to see a ray of sunshine in this stormy dairy economy. Temporary, Production Reduction, Producer Motivated. Dairy producers in the West have been considering regional production reduction plans. In the State of California, up to a 5% production cut-back is being considered by three of the larger co-ops in that state. The DFA, Southwest Council has conditionally approved a 5% co-op cut back in their council. Colorado producers have also tentatively approved a production cut-back in their state. This attempt, on the part of producers, to improve the milk price will be conditional on whether or not enough surrounding producers or co-ops will also voluntarily join this production reduction idea; those details are currently being negotiated. This, self-help, approach will work to short the milk market of the perceived milk surplus, only temporarily. A more long-term supply management plan will be required to gain long-term, favorable results. Exports- Produce Products the World Demands. According to a marketing director at Fonterra, this country’s largest export competitor/partner, our exports of dairy products would be greatly improved if we made what the world wants to buy: (1) We make yellow cheese, the world wants white cheeses. (2) We make salty butter, the world wants unsalted butter. (3) We make non-fat dry milk powder, the world wants milk protein powders and whole milk powder. Co-op leaders must be responsive to this and reduce production of cheese that is sold to the government as a huge loss to dairy producers. Dairy Price Stabilization Program. This production managed program, introduced by the National Holsteins Association and California Milk Producer’s Council, as of now, seems to be supported by the greatest number of producers, nationwide. This plan, or some version of it, will require production limits on producers to more closely match milk supply with milk demand, with an assessment charged to producers who produce, at, or, below their prescribed production limit. There are many provisions to this plan that can be viewed on the National Holstein Association’s website. It is imperative that all milk producers, while asking for assistance from industry leaders, be responsible for the quantity of milk put into the marketplace, and do their share to solve the pay price problem. Standardize Milk Tests at 3.5/8.7. The dairy conferences discussed raising the standard for which milk components are priced, to reinstate the 3.5% butterfat and 8.7% solids-non-fat standards that is already used in California, from the 3.2% butterfat and 8.2 solids-non-fat standards used in all other states. The benefit to producers would be greater milk utilization and a more flavorful product for consumers. Again, it is the co-op leadership that can begin this change. Imports to be assessed $0.15 dairy promotion assessment: Since all milk produced in this country is assessed $0/15 per cwt for dairy promotion and advertising, it was generally agreed that milk imports entering this country also be assessed the $0.15 per cwt promotion assessment. As conditions currently exist, dairymen are paying for the sales promotion and advertising for sales of imported products. The co-op leadership can make this change. Continuance of the CWT program: Although this topic was not aggressively debated, for the dairymen I talked with, the Co-operatives Working Together (CWT) program should continue but limited to cattle retirement only. I have personally suggested to the CWT group to convert day old or very young dairy heifers to beef cattle. Many dairymen argue that, since all dairymen benefit from the program, all dairymen should participate in the assessment. “Many other issues were discussed at the Dairy 360 conference. Some producers feel we should not count on more government help to further regulate our industry; others argue the current dairy economy will eliminate the “inefficient producers” and this is how capitalism works. I believe that capitalism without some regulation turns into cannibalism. As producers attending this conference, we came to the realization that we may not be in competition among ourselves, but in competition with the very institutions which all dairy producers have relied on to keep us safe from this kind of dairy crisis.” |
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STC provides capital & equipment to reduce farmers’ utility costs |
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It is not every day a company offers to provide the capital, equipment and expertise for a renewable energy program that will result in substantial savings for a dairy’s electricity costs. Much like the concept of a traditional digester, Source Technologies, LLC (STC) uses the farm’s waste water retention structure (lagoon) combined with power generation and technical engineering as an effective energy production solution for farms. This system is simple in principle and is provided at no cost to the dairy. STC is an engineering firm that has successfully launched renewable energy programs utilizing the concept of creating power from waste in the agricultural community. Executive Vice President Ernest Sandoval and Vice President Don Holt, said STC has combined co-generator technology with a methane capturing process to provide the Farm Electrification Program (FEP) to dairy producers. The FEP will result in reduced electrical costs for the dairy. Sandoval said the FEP is a turnkey program the company engineers and deploys at no cost to the farmer. The company employs end-to-end technical expertise based on work it has successfully performed in and outside the U.S. STC designs, builds and operates each solution on an individual farm basis. “Our company installs the technology required for providing an electricity source to the farm.” Sandoval said. “We accept the capital and operational risks and that’s why we are invested in ensuring that the program is properly executed for the producers.” The process is quite simple for dairy producers. STC initially goes on-site to the dairy to survey the size of the waste water retention structure, the number of cows, and whether it is a free stall barn or dry lot operation to determine the amount of methane produced and the existing electrical demand. The company takes into consideration water flow from the waste water receptacle, current power supply, power demand loads, and rates per kilowatt hour taken from the current electricity provider’s information. Upon analysis of each farm, and acceptance of an agreement by the farmer and STC to move forward, each suitable waste water receptacle is fitted with a polyvinyl cover customized according to the dimensions and preformed to the company’s specifications. Once the operation begins, the system creates an energy source onsite that provides electricity to the farmer at the agreed upon reduced fixed rate and reduces the need for the previous electrical source. “The FEP system provides the necessary electricity for a farm at a much lower rate than what it currently pays to other electrical providers,” Holt said. “The electricity savings will provide producers with incremental dollars to reinvest into their core operation, producing milk for the U.S. market,” Sandoval added. From an environmental aspect, the decreased risk of discharge or overflows from the waste water retention structure during a heavy rainfall is a major benefit of the system. The system also reduces noxious odors prevalent in many waste water retention structures. Other benefits include the reduction of the carbon footprint and providing sustainability to the farm. The FEP is a 10-year program which locks the discounted rate per kilowatt hour that the farm pays. “The program will save the farmer 10 to 15 % on electricity for his use and if surplus electricity is provided outside the grid, the dairy becomes a revenue partner with STC,” Holt said. “The best time for producers to consider our program is when they are building a new waste water retention structure or cleaning /expanding an existing one,” Sandoval said. ”There’re very few times when a farmer gets a hands-off, technical operation at no cost. In essence, we are leasing the waste water structure and as soon as the operation begins, it provides a fixed electrical rate that the famer is assured of and can budget for over ten years. This is a tremendous benefit considering the continued rise of electrical rates in the state of Texas,” Sandoval said. “If a farmer wants to reduce the farm’s electricity costs and take advantage of all the other benefits the FEP has to offer, they should talk to us,” Holt said. To have your farm surveyed and qualified for reduced electrical rates through the FEP system contact Don Holt at 214-557-7689. For additional information on STC please see www.stc-engineers.com. |
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Stay Nutrient-Rich in Tough Economic Times |
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According to the U.S. Department of Agriculture, food prices rose by 5.5 percent in the past year and are expected to increase up to an additional four percent in 2009. The economy has everyone digging deeper to save money. Higher food costs can take a big bite out of the family budget, so it’s important to learn how to shop smarter. Dairy MAX, your local dairy council, is introducing the “nutrient-rich stimulus plan” to remind Americans to eat nutrient-rich foods, even when they are on a budget. Dairy MAX spokespeople will visit nine media markets during August to spread the news about dairy’s nutrient-rich package that delivers calcium as well as eight other essential nutrients. Eating nutrient-rich foods does not have to break your bank. The average American goes grocery shopping a little more than twice a week, so there is no better place to start saving those extra dollars than at your local grocery store. If you have a list prepared of nutrient-rich foods before you head to the store, you will save an estimated 25% on your shopping bill by eliminating impulse purchases. Another easy way to trim the grocery bill is to not only look at the economical value, but also the nutritional value of foods and beverages that fill your grocery cart. You can rely on the five basic foods groups: low-fat and fat-free dairy, fruits, vegetables, enriched and whole grains, and lean meats to provide your family essential nutrients. When shopping the perimeter of the store, you’ll be greeted with nutrient rich foods such as fresh brightly colored fruits; vibrantly colored vegetables and potatoes; a bakery full of fortified fiber rich grain foods; low fat milk, cheese and yogurt on the dairy aisle, and a selection of lean meat, poultry, fish, and eggs. Keep in mind that on average, an eight ounce glass of milk costs only a quarter, making it one of the best beverage bargains. Milk can be your family’s calcium-rich liquid asset. Health is the new wealth. Just three to four daily servings of nutrient-rich, low-fat dairy foods, as part of a healthy diet, improves overall diet quality and may help to reduce the risk of osteoporosis, metabolic syndrome and obesity, as well as, help you get more nutrient bang for your buck. Dairy MAX nutritionists can clear through the clutter and help you shave dollars off your grocery bills by shopping smart. Visit www.dairymax.org to learn more. |
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