DART Meeting Offers New Ideas for Dairy Farmers

Charlene M. Shupp Espenshade
Special Sections Editor

MOUNT JOY, Pa. — Ask any dairy producer what is their farm's operation and more often than not, they will tell you they are in the "milk" business and all decisions and planning are to grow their milk profitability. However, more dairy producers are starting to think outside the box on what helps that milk bottom line.

To help agribusiness representatives understand how this could play into a dairy operation, the Pennsylvania Center for Dairy Excellence hosted one of six DART meetings this week at the Brubaker family farm in Mount Joy.

In the Works: Digesters for Smaller Dairies
One area of potential is renewable energy. As Pennsylvania producers look at how to cope with rising energy costs, new ideas are being brought to the table.
Setting the stage, Mike and Luke Brubaker hosted a tour of their latest farm innovation, a methane digester. The digester converts the farm's dairy manure into methane gas for electricity generation and separates the manure solids for bedding.

Jessica Miller of the Environmental Credit Corporation (ECC) discussed several opportunities for dairy producers through the company. The Environmental Credit Corporation works with producers to install practices that generate carbon credits. A carbon credit is issued when a project is verified to reduce a business's carbon emissions.

In return for helping a farmer develop the project, ECC earns funds off of a portion of the carbon credits sold on the Chicago Climate Exchange.

Miller said the Chicago Climate Exchange (CCX) is a voluntary trading market, modeled on the European Exchange. The CCX was created looking forward to a mandatory program in the future. It is the largest national exchange in the world.

The primary agricultural area for carbon credits is through manure management — it reaps the largest payoff.

"There are a lot of different reasons people are getting into digesters," said Miller. The reasons range from odor control to gas production for on-site electricity generation on large dairies. The other benefit is that it puts real cash in the hands in farmers' hands.

ECC has secured grants and investor money to help about 200 dairy farms install manure pit/lagoon covers. Four projects have been completed, several others have started construction on covers. The limitation of this program is that they only work on farms with at least 1,000 cows.

To work with smaller farms, ECC is rolling out a smaller-scale grant project for Pennsylvania-based dairy farms between 100 and 200 cows for bag digesters.

Miller said it is a cross between a lagoon cover and mechanical digester. This style has been used widely in South America, but has not really taken off in the U.S. The entire digester, meter, and flare system cost will be covered by ECC. The gas collected can be used for power generation and the effluent is moved to the holding pond for application.

The ECC is looking to work with about 10 farms. The only two requirements are the farm must be EQIP eligible and have an up-to-date nutrient management plan.

Coming Soon:  New Insurance Program
Willard Lemaster, the latest addition to the center staff, spoke about the LGM for Dairy program, becoming available at the end of August. LGM for Dairy is an insurance program that protects the gross margin between milk price and feed costs.

The program is available on Aug. 27 for the first round. It is only available the third to last business day per month. Farmers can purchase from one to 10 months of coverage. There is a delay time of one month.

The farmer projects estimated milk production and feed used for their herd. The gross margin becomes fixed and a payment is issued whenever the gross margin is less than the target figure.

Lemaster said the benefit of the program is that it's customizable to each farm and does not restrict a farm in market upswings compared to other dairy risk management tools.

Premiums will be cheaper for longer-term contracts, depending on the volatility of the market. The more volatile the market, the higher the premium, he said.

Also, unlike other risk management/insurance programs, the entire payment is due up front. But, when broken down over the long-term, he said the insurance pays for itself when the gross margin slips below the target level.

Outlook: Smaller Dairies Will Struggle
Mike Evanish of MSC Business Services presented his "state of the dairy industry," saying 2007 was a great year for dairy producers of all sizes.

However, as producers move through 2008, he predicted larger-sized dairies will have a good year while farms under 100 cows will continue to struggle to maintain profitability.

"It was a heck of year and it went across all sizes," he said of 2007. The driver for the profitability was that milk prices exceeded expenses. Asia is also demanding more dairy products and the U.S. dollar is weak, making U.S. products appealing to the global economy.

2008 milk prices should hold, he believes, because of the "trampoline" of cheese prices is averaging strong. There are concerns with the rising production costs and Pennsylvania producers have to remain aware of how to stay competitive with newer dairy states like California and Idaho.

The industry is seeing farm growth in all categories, Evanish said, except in the 100 cows and under category. These farms he described as "dead stuck at 60 cows."

In presenting his data, he said the driving force for many farms to stay smaller was the belief of taking better care of the cows. However, the 100 and under group had the poorest milk quality and lowest production, he said.

"Why is it when we are going to take better care of these cows we have such a high somatic cell count?" Evanish noted. "We are giving them the best care, why are they not the healthiest?"

Evanish critiqued all herds for not working harder to generate a positive internal herd growth. Herds that showed increased cow numbers were more profitable. He called it the "biggest profit leak."

The more successful farms have a better debt coverage ratio, more money to spend, lower cost of production, lower somatic cell count, and lower cull rate. Another factor is a successful heifer care program.

"A heifer care program is as important as a successful cow health program," he said. "The heifer care program has been neglected on too many farms in Pennsylvania. Every female born on the farm is precious."

The heifers need to make it to the milking herd in "outstanding" condition he said to ensure a higher rate of success.