This last week I was invited to the biannual meeting of Select Sires to make a presentation about the state of the dairy industry. As most of you know, Select Sires is an Ohio company (a federation of cooperatives) with its headquarter located in Plain City near Columbus.
Over the years, the company has been very supportive of our programs in the Department of Animal Science at Ohio State. It has funded research projects, research fellowships, internships, and has assisted in our teaching of reproductive management and artificial insemination. There are many good breeding companies; Select Sires is not alone… But Select Sires has certainly done well among its peers.
In the 30 minutes before my talk, Dave Thorbahn, President and CEO of Select Sires addressed the contingent of over 400 attendees. He talked about creating value for the customer, that the quality of the genetic in the straw is certainly important, but that an added value is in fact created by all the other “things” that comes with a semen straw. Dave is certainly not the first person to think along those lines, but he made me reflect about the dairy industry; how often we seem to forget about creating value.
Dairy Exports
Ironically, my talk centered on the importance of dairy exports on our domestic market prices. Last year, we exported over 13% of our total milk solids. Exports reached 16.5% of total milk solids production this last June. Last year, the value of dairy exports was close to $5.5 billion.
For the first six months of 2013, the total value of our exports has been in excess of $3.2 billion, creating a positive $1.9 billion in the balance of trade as we imported about $1.3 billion worth of dairy products from foreign nations. Between January and June, exports represented 50% of U.S. non-fat dry milk/skim milk, 52% of dry whey, and 74% of lactose production. There is no doubt that our domestic milk prices would be significantly affected downward had we not exported this substantial volume. But we seem to be exporting in spite of what we do!
Dry milk and butter
We produce mostly non-fat dry milk, whereas the world trades dry skim milk (the two powders have slightly different specifications – mostly maximum moisture) and in fact the world demand is much more for whole milk powder, which we produce very little of. We produce salted butter, whereas the world trades unsalted butter. It is as if we don’t want to export. Certainly we are not behaving as if we are trying to add value.
Consequently, the only way that we can compete is with price, which is why we currently have to offer our dairy products on the world market at discounted prices compared to Oceania (New Zealand and Australia) and even the European Union. Imagine what could happen if we ever tried to add value to our dairy exports. Closer to home. Although most of us have nothing to do with export policies, there is certainly a lesson to be learned: are we producing the kind of product that our customers – the handlers – really want? I am well aware that the relationship between dairy producers and dairy processors is not always a smooth one, but perhaps we could gain if we tried to add value to our own product.
Organic milk
For some, this may mean producing differentiated milk such as organic milk. For most, this could mean producing a more desirable milk for our customers: the processors. One day last fall I visited two farms within the same county. The first farm produced milk with a bulk tank somatic cell count (SCC) of 90,000/mL; milk shipped from the second farm had an SCC exceeding 400,000/mL. Don’t you think that the milk from the first farm had an added value compared to the milk from the second farm? What about milk solids? In Federal Order 33 (FO33), milk is subject to component pricing. In our Order, over 90% (generally close to 95%) of a producer’s milk check is determined by the pounds of fat and protein contained in the milk. A hundredweight of milk in FO33 contains less than 7 lbs of fat and protein.
Cheese plant
Dairy producers are paid very little (sometimes the price is in fact negative) for the other 93 pounds in a hundredweight. If I were an Ohio cheese plant I would love to receive milk with 8 or 9 pounds of fat plus protein per hundredweight. I could make my plant operate so much more efficiently. Such milk would have an added value for me. And you don’t have to change breed to increase the value of your milk. Nutrition can have a significant impact on both the fat and protein content of your cows’ milk.
In the longer term, genetic can have a substantial effect on milk components. You could produce milk with an added value and be rewarded in the form of premiums for your milk. This would not solve our dairy export problems, but it would do your bottom line a whole lot of good.
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