Holstein World: Are there specific areas not directly related to dairy production that will have a “trickle-down” effect on milk prices? For example, increased ethanol production and the climbing price of corn?

Lee Mielke: Sections of the farm bill like EQUIP, CSP and energy offer opportunities for dairy farmers to offset costs associated with meeting environmental requirements as well as provide income to offset increased feed costs due to ethanol production.

Consumer perceptions will also impact producer bottom lines. rbST free milk, organic milk, milk from cloned animals, animal rights, drugs used on animals are a few of the issues that challenge the dairy industry.

Dave Natzke: With ethanol, you””ve highlighted one of the major issues. We””re headed for record milk prices this year. Unfortunately, with high costs related to feed and energy, profit margins will be tight. Due to security issues and energy concerns, the U.S. seems to be developing a “cheap fuel” policy, by subsidizing domestic ethanol production to decrease our reliance on foreign oil. In doing so, we have created massive growth in ethanol infrastructure, creating additional competition for corn and soybeans. It””s estimated ethanol production used about 20% of the total U.S. corn crop last year, and that””s expected to continue to rise.

As stated above, meeting environmental regulations add costs to production, but don””t add to the milk price.

Any immigration policy that sharply restricts labor supply could have a negative impact on dairy producers.

Holstein World: What are the primary concerns of dairy producers with the 2007 Farm Bill?

Lee Mielke: Milk prices, I”m sure is number one. Environmental regulations would be at the top of the list, along with what impact budget constraints will have on ag spending and what affect world dairy politics may have on the dairy title of the U.S. farm bill

Dave Natzke: The primary concern is that, in troubled budgetary times, an adequate “safety net” is established to protect dairy producers in the event milk prices drop drastically. Many producers believe the current federal dairy prices support program and a counter-cyclical program – such as MILC in some form – can do that. Other Farm Bill proposals include some sort of milk income insurance program.

Other chief concerns include environmental regulations: not only what they regulate, but how much it costs the individual producer to meet those regulations. Will large capital investments be needed to meet rules covering manure or odor management, for example.

Holstein World: How would the termination of the Dairy Export Incentive Program (DEIP) affect our milk prices?

Lee Mielke: USDA is NOT terminating the DEIP. It assumes that there will be no ned of it, considering the current supply and demand balance. DEIP is not mandatory and the Agriculture Department can use it as it sees fit, though National Milk and others have charged that USDA has not used the DEIP as Congress intended.

I hope that USDA’s decision to not use the DEIP is not based upon the success of the CWT export assistance program.

Dave Natzke: As Lee noted, I know of no one who has proposed eliminating DEIP. However, it has been used so little over the past few years, I doubt people would miss it if it was eliminated – under current market conditions.

DEIP was designed to helps exporters of U.S. dairy products meet prevailing world prices for targeted dairy products and destinations. Due to market conditions and large export subsidies by the European Union and others, “world” dairy product prices were usually lower than U.S. prices, therefore the government also had to subsidize exports (through DEIP) to help lower the cost to foreign buyers. Under the program, USDA pays cash to exporters as bonuses, allowing them to sell certain U.S. dairy products at prices lower than the exporter’s costs of acquiring them. The major objective of the program is to develop export markets for dairy products where U.S. products are not competitive because of the presence of subsidized products from other countries.

Currently, however, a weaker U.S. dollar, reduced foreign export subsidies, a drought in Australia (normally a larger exporter) that has limited world dairy product supply, and heavy demand for some dairy products in developing countries, has raised world dairy product prices to where U.S. prices are now competitive. According to the latest annual report from the U.S. Dairy Export Council, fewer than 2% of the exports in 2006 were assisted by the government or the Cooperatives Working Together (CWT) export assistance program.

Market conditions change, and the structure of DEIP should be retained for the time when, or if, it is needed again.

Holstein World: Describe for us the “regional dairymen’s” views and feelings regarding the 2007 Farm Bill.

Lee Mielke: Although I don’t believe I have much of a handle on this answer, states with larger dairies are likely opposed to extending the MILC program and states with smaller dairies, farmers likely oppose the reduction in the percentage of MILC payment and question whether the $9.90 support price is high enough.

I think most producers support the price support program and the Federal order program, although there are producer groups who are supporting their termination.

Dave Natzke: While regionalism has always added controversy to U.S. dairy policy, I believe differences more often than not are now defined by the style/size predominant in a region, not necessarily by geography. The West, predominated by fewer but larger herds, therefore would likely oppose any federal policies that have constraints based on herd size. The Midwest and Northeast, predominated by more smaller herds, may favor different policies altogether.

Take the two major U.S. federal dairy polices, for example. Between 2000 and 2005, the Dairy Price Support Program (DPSP) cost about $2.3 billion; the Milk Income Loss Contract (MILC) program about $2 billion. Not a big difference, but how the money was divided makes a big difference.

Under the Dairy Price Support Program, USDA purchases excess dairy products from the market, reducing supply and thus, boosting milk prices. It is not based on milk production per farm. One of the major items purchased by USDA is nonfat dry milk, produced in large quantities in the West, and the major product purchased by the government to boost milk prices. During the period 2000-2005, the West received 92% of DPSP payments; the Midwest, about 1%; and the Northeast, about 3.5%. Look for the West to continue to favor DPSP.

On the other hand, under the MILC program, payments are limited to the first 2.4 million pounds of milk production for each producer. Some smaller herds may not reach that total for the whole year. Other herds may reach that production cap within months, or less. Thus, the larger herds receive the payment on a smaller percentage of their total annual milk production. For the period 2000-2005, producers in the Midwest received 46% of all MILC payments; the Northeast, 24%; and the South, about 15%. The West, with its larger herds, received about 15% of total MILC payments.

In general, by region, the Northeast and Midwest support MILC; the West supports DPS.

Currently, MILC provides full payment to 85% of U.S. herds, but covers only 45% of total U.S. milk production. Due to changes in size distribution of dairies, the amount of milk eligible for MILC payments has decreased by 10% since December of 2001. Increasing the payment eligibility to 4.8 million lbs. per year would increase full coverage to 93% of the herds and 56% of the milk. So, in the upcoming 2007 Farm Bill debate, don’t be surprised if the MILC payment is increased to cover 4.8 million lbs. per year to make it politically palatable for large producers in the West.

Other regional differences may result from federal milk marketing order rules, which are not covered under the Farm Bill.

Holstein World: After a bit of a break from blogging last week due to some technical difficulties, Im happy to say we are off and running with another great topic for discussion. This week we will be focusing on the Farm Bill. Answering questions for us and reviewing the impact the bill will have on the dairy industry are Lee Mielke from DairyLine Radio, and Dave Natzke from Midwest DairyBusiness. If you have any questions or comments you”d like to share with us or Lee and Dave, feel free to send them my way at sschmidt@dairybusiness.com.

Share with our readers the current discussion behind the USDA”s preliminary decision to include Milk Income Loss Contract (MILC) program payments in the 2007 Farm Bill.

Lee Mielke: I think MILC was included because of the political reality of who now controls Congress. Key senators from states like Vermont and Wisconsin are strong supporters of the MILC and the program is consistent with the way other commodities are treated. And, the President expressed support for the MILC program while on the campaign trail in the last election.

Dave Natzke: First, a bit of review. The original MILC was established in the 2002 Farm Bill, but had an expiration date of Sept. 30, 2005. To “extend” MILC required a separate piece of legislation, and the Agricultural Reconciliation Act of 2005 reauthorized the MILC through Sept. 30, 2007, with the intent of having it sunset with the 2002 Farm Bill.

However, due to special requirements of the Deficit Reduction Act of 2005, which almost everybody overlooked at the time, the extended MILC program (also called MILCX) actually reauthorized payments only until Aug. 31, 2007, or one month short of the expiration date of the 2002 Farm Bill. Subsequent efforts to extend MILCX for one more month failed, in part due to budget concerns. Also, opponents of the program hoped that because the program was no longer tied to the Farm Bill, it might just go away. (It should be noted that the Deficit Reduction Act of 2005 also reduced the payment level to eligible dairy producers, from 45% of the difference between $16.94 per cwt. and the Class I price in Boston, to 34% of that difference.

So in reality, the Bush administration’s proposal to place MILC back in the 2007 Farm Bill is really just putting it back where it started, probably so it is no longer a separate budget item, and that program costs can be adequately budgeted and managed by USDA.

The impacts of last fall’s elections make it more likely MILC will be included in the 2007 Farm Bill. The Midwest and Northeast – with a larger share of “small” dairy producers who benefit the most from MILC – gained leadership posts on agriculture and, perhaps even more importantly, appropriations committees in both the Senate and the House. Those committees not only help set policy, but also decide how much funding it receives.

Holstein World: MILC is not part of the current Farm Bill, but a separate program and line in the federal budget. Why was the decision made to include it in the 2007 Farm Bill and will this have an effect on how funds are allocated?

Lee Mielke: MILC was part of the 2002 farm bill but was unsettled. It continued as a separate item, attached to a different piece of legislation but supporters wanted it extended so that it would coincide with the actual farm bill.

It should not have an effect on how funds are allocated. The total amount that USDA budgeted for the price support program and MILC is only $793 million for 10 years.

Dave Natzke: As far as I know, MILCX has no set federal funding level. It maintained milk price triggers to determine when payments to producers would be made, but did not set spending limits. Therefore, it”s fairly open ended, and probably difficult to budget.

How will putting it back into the Farm Bill impact the way funds are allocated? Under USDA’s latest proposal for the 2007 Farm Bill, dairy producers would continue to be eligible to receive an MILC payment if the Class I price in Boston in any month falls below $16.94 per cwt. However, USDA’s proposal gradually reduces payment rates over time. For fiscal year 2008, the proposed payment rate would remain at the current rate of 34% of the difference between $16.94 per cwt and the Class I price in Boston. For subsequent years, the payment rate would be phased down to 31% in FY 2009, 28% in FY 2010, 25% in FY 2011, 22% in FY 2012, and 20% in FY 2013-2017.

Additionally, MILC payments would be based on 85% of the 3-year average of milk marketed during fiscal years 2004-06. This policy change would make the MILC program consistent with the other farm bill counter-cyclical programs that are calculated on historical production bases.

What has always been the most controversial part of MILC is that it limits payments to a maximum of 2.4 million pounds of milk per farm annually. Under the latest USDA proposal, future payments would remain subject to that limit.

Adding MILC to the Farm Bill provides additional controls on payments. Under USDA’s plan, MILC payments would also count towards a producer’s overall counter-cyclical payment limit of $110,000 annually, helping to limit payments to producers with multiple dairy operations. The new adjusted gross income eligibility cap of $200,000 annually would also apply to MILC payments.

A: With having friends on both sides of the border, the closing forced me to change my regular business routine. The US/Canadian border closing has forced me to travel more miles to find cattle to fulfill my needs. I was cut-off from a very elite cattle area that has many farms in that are very close together. The closing has made me utilize a great group of new breeders here in the US. I have found many cattle in a much wider-spread area that I have never traveled before. As a result, I have made many new business partners and customers. When the border does open, I will have a much more hectic travel schedule! I plan to continue to work with both breeders here in the US and with those on the Canadian side of the border.

I have just finished reading the opinion of Dr. Nate Zwald.  Surely he can provide numbers sustaining his opinions – although those numbers apparently come from one single herd directly managed by Alta itself. A more scientific approach would request more herds and managed by other people, not by the ones who are also sampling the bulls and selling the semen. I mean, if the Swedish would have a herd managed by them and would show the good numbers of the Swedish Cows or how good are their bulls’ daughters, well….I think someone would have something to argue about!

But although I don’t know Dr. Zwald, his words sound enough sincere to be trusted, at least to my ears.

I understand that we can change direction by using different genetics – that has been demonstrated.  Nevertheless, Dr Zwald does not mention the word INBREEDING. This is the key. All the well known problems (fertility, stillbirths, etc…) come from INBREEDING. If we do not find a way to fight this, there will be no effective solutions. Using a higher DPR sire is good, but to achieve good results you should use it intensively and AI Studs would use him as Sire of Sons. The next generations of your herd would have a larger % of genes of this Bull, and more likely those cows would be bred to a new bull that also has some of those genes in his DNA.

This is going be frustrating -  I have a 100 cow herd with fertility problems. Since Blastoff is a good bull for fertility (BTW, same family as Mtoto….sounds familiar?), I would breed 50% (at least….) of the herd to him. If Blastoff will transmit 100% of his genetic potential (difficult, but let’s give it) to all his daughters, I could have one day a group of 25 Blastoff daughters – with better fertility parameters. But then I have to breed them to a bull that – again! – is a fertility improver, as I don’t want to go back. And more likely the good fertility bulls come from 2 or 3 bloodlines, no more. And I should also find a bull without Blackstar/Mascot/Mark in his pedigree (Blastoff is Duster x Mascot x Mark). The challenge starts becoming difficult.

So, I understand and highly respect Dr. Zwald’s opinions, but I think those can be short-term solutions and not more. I understand this is hard to take, but hiding the truth does not help.

With my Best Regards,

Claudio Mariani
Product Manager
Genesi Project S.r.L.
Italy

For an “on-farm” experience regarding our recent blog topic of crossbreeding, I was put in contact with Pat Silva of Curti Farms in Tulare, CA.  The dairy consists of three locations and, up until about 8 years ago, was a purebred Holstein herd.  Prior to working on the dairy, Pat worked with Holstein USA and is a past president of the California Holstein Association.  “Those breeders who choose to incorporate crossbreeding on their farms may site fertility, components or longevity as the problems they are looking to fix.  For us, our primary concern was calving ease.”

The decision was made to breed half of their herd at the time, approximately 2000 cows, to Jersey bulls.  “Looking back, we are glad we crossbred half the herd and kept the other purebred.  Doing it this way we were able to make comparisons.”  The unscientific results were pleasing.  They noticed that the Holsteins bred to Jerseys bred back an average of 21 days quicker than their Holstein counterparts that had Holstein calves.  Also, it appeared that those Holsteins bred to Jerseys produced a half gallon more milk per day. 

From that point, the dairy decided to continue to breed their crossbred cows to Jersey bulls.  Thereby increasing to a predominantly Jersey cow.  “The F2s and F3s are doing well.  Our Jersey service sire selection is based upon components and type, and is largely Select Sires based.  We have seen an increase in the components which has allowed our milk to be contracted at component pricing.” 

Currently the three locations are milking a total of approximately 5,200 cows.  The first dairy is home to 1,900 Holstein x Jersey crossbreds.  The rolling herd average is near 23,000 with 4.3% fat and 3.8% protein.  The second dairy is comprised of 2,900 Holsteins with an RHA of 24,000M and 3.5% fat, 3.1% protein.  470 predominantly Jerseys reside on the third dairy and have an RHA of 18,000 with 4.8% fat and 3.8% protein.

“It is our goal to become a Holstein herd and Jersey herd.  They are treated as two separate entities on our dairy and it has worked well for us.  We would definitely do it again and do it exactly the same way.  This approach has allowed us to keep a good volume of milk and yet lock in on contract opportunities with component pricing – a definite help to our bottom line.”

On Tuesday I had the opportunity to visit with Dino Migliazzo of Migliazzo & Sons Dairy in Merced, CA. Dino’s name was suggested to me by the Holstein USA Field Rep for Northern California, Dennis Edlund, as a dairy producer that has found the type of cow he wants within the Holstein breed. In fact, a number of cows in the Migliazzo herd are on the locator list and several more have been sold to other producers and gone on to do very well.

The Migliazzo herd operates under the Dinomi prefix and milks approximately 800 cows with about 800 youngstock raised on the farm. On 2x a day milking, the current rolling herd average is 30,000M, on an energy corrected scale.

“Purebred genetics have provided additional revenues to our farm over the years. Until recently due to increased feed costs, we were able to receive $175 over drop calf prices selling to commercial dairymen. There remains a strong demand for purebred genetics in our area.”

Given the crossbred population in California, I asked Dino if incorporating crossbreeding in their herd’s breeding program was ever considered. “We never gave the idea a thought. The short term financial gains that might be experienced won’t solve the long term problems that result. Those people who’ve decided to use crossbreeding quite possibly did not take advantage of the tools Holstein provides to combat the ‘problems’ of the breed.”

“About 5 to 7 years ago, we began working closely with Pete Blodgett to develop a selection formula that works for our breeding goals. We look at the traits of Calving Ease, Productive Life, Somatic Cell Score and Daughter Pregnancy Rate, without sacrificing Type & Production; more specifically, the Type traits of Udder Composite and Overall Type. Utilizing the Udder Composite trait as a selection tool provides a lot of positive attributes the commercial dairymen is looking for – teat size & placement, height, width, depth and udder cleft.”

Given these selection traits, the Dinomi herd has a strong influence of the following sires, in either their youngstock or as current service sires: Shottle, Ramos, Mac, Potter, Airraid, Pontiac, Final Cut, Billion, Merrill Lynch, Adam, Startit and Bret.

“A purebred Holstein breeding program, given all the factors on a dairy, has allowed us more ‘spendable’ dollars at the end of the day. Being involved Holstein USA’s Tri-Star program has also provided recognition for our farm and individual cows in a format that doesn’t require us to apply for the status – a delightful side benefit to using purebred genetics.”