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Level of Over-Order Premium, May 2012
Testimony Offered for
Pennsylvania Farm Bureau
Before the Pennsylvania Milk Marketing Board
Regarding the Level of Over-Order Premium
May 2, 2012
Presented by Richard Ebert, Dairy Farmer, Will-Mar-Re Farms
Chairman, PFB Dairy Committee
This testimony is offered on behalf of the Pennsylvania Farm Bureau, an organization representing more than 53,000 farm and rural family members in 63 counties. Dairy farmers are the largest segment of producers within Farm Bureau membership.
My name is Richard Ebert. My brother and I operate Will-Mar-Re Farms in Westmoreland County. We milk approximately 80 Holsteins, and grow corn, alfalfa hay, and soybeans. Eighty-five percent of our income comes from our dairy operation. In addition to my on-farm activities, I am the Vice-President for Pennsylvania Farm Bureau (PFB) and also serve as the Chairman of PFB’s Dairy Committee.
Farm Bureau would like to thank the Pennsylvania Milk Marketing Board (PMMB) for providing the opportunity to offer testimony today regarding the over-order premium. The objective of our testimony is to offer evidence in support of our recommendation that the Board continue the current Class I over-order premium at $2.15 for at least six months. We also support continuation of the fuel adjuster.
A Challenging Environment for Dairying
While some of what I am about to present may sound familiar to the Board and parties here today, I believe it underscores an important point: there is still a very real need for the over-order premium at its current level. Despite decent milk prices, dairy farmers are still facing a challenging environment for dairying in Pennsylvania.
We also must consider what has happened in the dairy industry within the last six years: Pennsylvania dairy farmers have been living through a drastic and difficult economic roller coaster. And it hasn’t been fun. Sharp increases in input costs largely undercut farmers’ opportunity to make significant profits from higher producer prices in 2007 and 2008. Times got even worse in 2009 when those high input costs were compounded by historically low prices. And in 2010, climbing input costs once again hurt farmers’ ability to receive needed profits from that year’s modest price recovery. Then, just when milk prices and input costs showed moderate stability in 2011, Mother Nature unleashed her fury, and those repercussions are still being felt on farms today.
If we talk only about prices, then last year was a good year for Pennsylvania’s dairy farmers. However, as any good business owner knows, we can’t just consider price received as the sole marker of success. Instead, it’s all about margin. So, today, as I offer my testimony, I hope you’ll reflect upon the ultimate impact on margin and the economic pressure that many dairy farmers are still feeling from the last six years.
For most of the last five years, we’ve seen input costs steadily rising, putting stress on already fragile margins. While over the last year, prices have remained relatively stable, the extreme effects of last year’s drought and flood on quantity and quality of input feed produced will seriously hurt Pennsylvania dairy farmers’ ability to sustain profitability of their operations until feed crops can be replenished during this year’s growing season. 2011 was horrible weather year, particularly for farmers. With last year’s triple weather hardship of a wet spring, an extremely hot and dry July and August, and a September filled with rain and flooding, farmers are struggling with not only with feed shortages, but poor feed quality and all the resulting challenges.
Many farmers are running out of feed. I know I am – I ran out of haylage on April 14th. My normal production of haylage from the previous growing season is enough to carry my farm operation until mid-May, when we harvest spring haylage. Instead, I’ve been feeding two-year old surplus hay to my cows and, as I’m working on this testimony, I’m also making arrangements to purchase round bales to feed my heifers. As a result, I’m pinning much hope on my spring haylage harvest in two weeks.
However, even as we prepare this testimony, the result of the harvest is far from certain. We saw early growth of our hay because of the warm weather in late winter and early spring, but April’s cold weather has set the crop back again and it is hard to determine what, if any, affect the April frosts will have on the hay. And, if the crop fails or is of poor quality (as it was last year), we’ll need to not only increase the protein percentage in our feed concentrate, but also feed more of it, placing further stress on our margins.
In addition, last year’s wet weather meant we weren’t able to complete chopping corn for silage until October (instead of September) which led to nearly a 10 percent decrease in moisture and fermentation problems in storage. And much of the corn we typically shelled for high-moisture corn molded in the fields before we were able to harvest it. Because of this, we had to buy larger amounts of propionic acid to preserve the corn, adding to our expenses and further tightening our margin.
In the end, we’re forced to look at feeding alternatives and buy more feed inputs to make up for the deficiencies in quantity and quality of feed our farm is experiencing. And, from talking to my friends and others in the dairy industry, I’m not the only one facing such issues.
So, as you can see by these examples, last year’s weather has really left a black mark on not only my harvest, but on my feed costs as well. To help illustrate this, I worked with my nutritionist to calculate my farm’s income over feed costs.
As you can see by Table 1, I calculated income over feed costs for three months in 2012: January, February and March, and also provided March 2011 as a point of comparison. It is important to note that for most of 2011, my income over feed costs were fairly strong, however starting in January 2012, there has been a steady decline.
The table shows that when comparing March 2011 and March 2012, my milk income fell from $22.74 per hundredweight to $19.74. During the same period, my feed costs also rose (partially from an increased need for feed concentrate), from $6.17 per cow to $6.96 per cow. As a result, we see that my income over feed costs has steadily declined from $8.30 in January 2012 to $7.69 in February 2012 to $6.86 in March 2011. The $2.89 decrease between March 2011 and March 2012 means that Will-Mar-Re Farms’ income over feed costs dropped by nearly thirty percent in when comparing March 2011 to March 2012. And that’s a significant change to our margin.
But the low quality feed doesn’t just impact feed costs, it also affects my cows and my expenses. On the cow side, we’ve been experiencing fluctuations in milk output per cow depending on the actual quality of feed we pull from the silo. In addition, perhaps most noticeably, we’re experiencing problems in our breeding program. Typically, we have a 90 percent conception rate on the first breeding of heifers. But, this fall, when we started feeding the poor quality corn silage and haylage and extra hay as a filler, our conception rate fell to 70 percent.
This 20 percent drop in our conception rate not only makes me concerned about the health of my cows, but it adds feed costs (as we try to increase the protein levels), increases breeding costs, and delays the time before we can incorporate these heifers into our milking herd. This ultimately causes lost milk revenues, something we can ill afford given all the other stresses on our margins.
Today, I’ve only offered a few examples of the situation farmers are facing in Pennsylvania. Yes, despite recent drops, milk prices are still relatively strong, however, we cannot forget about impact of downward trending prices, continued high input costs and the weather on farmers’ margins. My farm’s 30 percent drop in income over feed costs during the March to March comparison is a perfect illustration of this – and it doesn’t even factor some of the other costs I discussed today and the many more I did not.
The bottom line is that farmers need the benefits of the over-order premium today just as much, or perhaps even more, as they did back when the Board set the premium back in December. As a result, Pennsylvania Farm Bureau strongly recommends that the Board adopt an order that sustains the current level of over-order premium at $2.15 per hundredweight for the next six months, as well as continuing the fuel adjuster.
Again, thank you for considering our request and my testimony today. I’d be happy to answer any further questions.
Table of Income Over Feed Costs for Will-Mar-Re Farms
PaOneStop, an online software tool which allows farmers to map their operations and assists with compliance on nutrient management regulations.