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Milking Higher Profits from the Dairy Industry

Recent years have been hard on dairy farmers in Pennsylvania. Milk prices have fluctuated sharply, at one point falling to a 25-year low. Extreme weather-swinging from a prolonged drought that resulted in historically low groundwater levels to the wettest year on record-have resulted in crop losses and forced producers to buy more feed for their animals.
Dan Woods, dairy producer, Erie County

Dan Woods, dairy producer, Erie County

"The Dairy Options Pilot Program training offered by Penn State Cooperative Extension and the USDA exposed me to the futures market, and the options gave me some protection when milk prices dropped. It was a great program, and it definitely gave me a tool that I can use in the future to help me manage the floor price for my milk."

Higher farm inputs, coupled with lower milk payments, spell trouble for producers. Risk management on the farm-locking in milk prices and insuring crops against loss-has emerged as a critical strategy dairy farmers can use to deal with adversity and protect their businesses. The state and federal departments of agriculture have developed programs to aid dairy farmers, and Penn State's College of Agricultural Sciences and Cooperative Extension have offered a variety of educational and training programs to help producers take advantage of them.

The Payoff

Dairy Options Pilot Program

Penn State Cooperative Extension educators offer the Dairy Options Pilot Program (DOPP) with the USDA Risk Management Agency. More than 26 counties in Pennsylvania and 26 in New York have participated in satellite videoconferences and other programs on DOPP and the Farm Bill. The training is designed to teach producers to use the futures market to stabilize their income. As a result of learning how to forward-contract milk, seven producers in three Pennsylvania counties purchased options. Two were willing to share their results. One producer indicated that his options resulted in an annual increase of $3,000 in farm income. Another DOPP participant reported an increase of $2.41 per hundredweight for 40 percent of annual milk production, and an increase of $2.69 per hundredweight for 30 percent of annual production because of participation in this educational program. The result was more than $30,000 in additional farm income. Other seminars offered by Penn State dairy economists have included "Understanding Your Milk Check," "Basics of Forward Contracting," "Computing Your Basis," "Incorporating Risk Management into Your Business Plan," and "Strategies and Market Outlook."

Financial and crop insurance training

Cooperative extension also has teamed with USDA's Farm Service Agency (FSA) to provide training throughout the state. In 2002-03, 235 farmers completed financial training. Of those, 176 estimated that application of the finance and planning principles they learned will increase farm net worth by an average of $300 per month, or $3,600 per farm per year. Total impact for the 131 farms is estimated at $471,600. Faculty and extension educators also initiated a five-month series of monthly dairy marketing lunch meetings, where they educated producers and industry representatives about crop insurance and associated programs. More than 4,000 farmers attended 70 presentations offered at these meetings. A crop insurance website developed by Penn State (www.cropins.aers.psu.edu) has received more than 23,000 visits. Three extension publications were developed and 40,000 copies were distributed. Partly as a result of these educational efforts, Pennsylvania farmers paid $5.4 million in premiums, but the losses paid out through the first three quarters of 2003 totaled $18.1 million. This equals a risk-management return of $4.32 for every dollar spent by farmers. Sign-ups for crop insurance in 2002 included 14,603 farms and 1.16 million acres (about 50 percent of eligible acres), up 20 percent from 2001 and up from approximately 26 percent of eligible acres in 1999.

Johne's disease control and education

A multi-stage program to help beef and dairy cattle producers control Johne's disease within their herds was developed jointly by Penn State's College of Agricultural Sciences and the Pennsylvania Department of Agriculture. Johne's disease is a bacterial disease of cattle and other ruminants. Symptoms include weight loss, diarrhea, and decreased milk production in dairy cattle. Once cattle contract the disease, it's incurable. It's estimated that between 20 and 40 percent of the dairy herds in Pennsylvania have cattle with Johne's disease. Beef cattle have it as well, but at a lower frequency. If a producer does nothing to prevent the spread of Johne's disease, the dairy operation will eventually decline in production. The Pennsylvania Johne's Disease Program is a voluntary management tool that can help dairy producers identify whether their herds are infected and control or eliminate the disease. Penn State's role in the program is to provide educational meetings and materials for farmers and veterinarians and to provide training for both veterinarians and industry professionals. During 2003, more than 40,000 Pennsylvania cattle were tested for Johne's disease. Five hundred Pennsylvania herds are now participating in Johne's control programs.

Dairy Production Medicine Certificate Program

A Penn State College of Agricultural Sciences educational program for practicing veterinarians is contributing to healthier herds-and healthier bottom lines. The Dairy Production Medicine certificate program, offered in 10 three-day modules over a three-year period, is designed to teach and reinforce herd-performance medicine, as opposed to the more traditional individual animal care that most people learn in veterinary school. A recent survey reveals that what the veterinarians learned in the course is making a positive difference in their practices and in the dairy operations they serve. Dairy producers surveyed said that as a result of the program, fewer unscheduled visits by their veterinarians were required to deal with herd health problems. Producers reported the greatest progress in forage evaluation, milk-quality analysis, records analysis, and improvements in animal environment. These improvements translated into higher productivity and profitability through reduced feed costs, higher milk yields, reduced somatic cell counts, premium bonuses on milk, and increased pregnancy rates. One producer reported that he was able to reduce purchased feed costs by $80 per ton. Another reported that milk yield increased eight pounds per cow in only two months. Veterinarians reported that by implementing concepts learned in the course, they were able to reduce the number of emergency calls from clients by 20 percent. Graduates said proactive, preventive health care programs to address mastitis and milk-quality problems and to improve reproductive performance and heifer health also increased significantly.

For more information, contact either Penn State Cooperative Extension at 814-863-3438 or the Office of Research and Graduate Education at 814-865-5410, or search for the topic on the College of Agricultural Sciences' website.