By E. W. Lang
I welcomed this
last issue of Hoard's Dairyman with all the enthusiasm of a child when the
Christmas Sears and Roebuck arrived each fall. It was the Hoard's issue with
the World Dairy Expo cover subject and report on who won what among the cows
and people who were there.
But it wasn't the
show report that was of interest to me. The divine word of Genske, Mulder and
Co., the esteemed and Certified Public Accountants to the industrial milk
production industry, was reported in summary form by Hoard's Dairyman Western
Editor, Dennis Halladay.
For some years I
got a complete copy of the Genske Mulder publication on profits and loss among
large dairies in several of the western United States. I used this to compare
our 300, 400 then 600 cows for revenue and expense. The comparison was for my
own review, but I generally delivered an abstract of sorts to a loan officer,
and to the bank Chairman if our numbers were favourable, and if I was wearing
dress pants, good shoes and a collared shirt.
I'd encourage you
to read this Hoard's article about what's going on among the industrial dairies
and be familiar with what is possible, as well as what can happen, with today's
technology to commonly milk well over 2000 cows in one herd.
Compare these
numbers to your own herd, then spend some time in silent contemplation. You
might feel encouraged and find some favourable comparisons to show your lender.
You may find a couple things you need to improve upon in your own herd, or you
may become better prepared to summon the auctioneer when the time is right.
Regardless, you
should be informed of what it actually costs to produce milk on today's
industrial dairy farms, whether you milk 60 cows or 6000. And if you are unable
to reckon your own costs for comparison...
Never mind.
Witnesseth:
The average Genske
Mulder client had 2300 cows and losses were $354 per cow in 2018. That's over
$800,000 for the year. Losses ranged from over $500 per cow in Arizona to only
$167 on Washington State farms.
Cumulative losses
among all lient dairies totaled $924 per cow for the last four (2015 through
2018) calendar years. The profitable year 2014 came in at $826 net income per
head, so those dollars are now long gone, particularly when some of those
dollars had to catch up from years prior to 2014.
Labour on all herds
averaged $1.87 per cwt. Smaller dairies, particularly those with older
facilities and located in wetter, colder areas have to add at least $1.00 and
probably $2.00 to that labour cost. I suspect small and large herds have
similar 'other costs' on a per cwt. basis, given what I have found over the
last 19 years of my own comparisons.
Incidentally, if
the current November Class III price of $19.55 per cwt. went on for 12 months,
average net income on these industrial dairies would come over $1,000 per head
for the year. As such, the average farm would be back to zero, in that they
would have recovered the last four years of total losses. Many family oriented
40 to 400 and 800 cow herds would take at least a couple years of $19+ milk to
get back to zero. Labour cost and older, inefficient facilities are a large
reason for this.
Someone asked me a
few months ago if it was possible for a giant dairy to produce milk in the mid
west for $10 per cwt. Based on these accounting data, feed cost can come in at
under $10 per cwt., but total costs have to include an additional $8 per cwt.
when everything is included such as herd replacement costs and depreciation.
I'd further suspect
that if someone says their cost of production is $16 or less per cwt., be it on
a herd of 100 or 1,000 or 10,000 head, they are leaving some expenses out.
Remember, we never write out a check for dairy farm depreciation, but we still
pay it every day on every thing, rolling and fixed, living, and sometimes dead.
I would also like
to comment onm the abundant dichotomy of the October 25 Hoard's Dairyman issue.
The Net Income averages for many of largest dairies in the United States were
reported along with a report on the largest dairy show in the United States.
The culture and purpose of each industry segment now has almost no crossover,
connection or correlation, one with the other, where 50 years ago there was at
least some.
Hoard's World Dairy
Expo review of each breed show named who was Premier Breeder and Exhibitor, who
had Jr. Champion, Intermediate and Senior, as well as who served as judge. It
would also have been interesting to see exactly how many minutes each judge
took to finally name each Grand Champion, whose picture was included in each
breed's show summary.
On the CME this
week, pretty much everything that mattered to the milk producer was up for the
week.
Barrel Cheddar was
up 25 to $2.25 per lb., the highest price since September, 2014. Block cheese
was up 15 at $2.12, and Butter ended the week at $2.06 per lb., down five
cents. November Class III Milk ended the week at $19.55 per cwt., up 99 cents.
All of calendar 2020 Class III averages $17.17 per cwt., up only one cent from
Friday, last, but at least it's still up.
Also up are dairy
product inventories in cold storage, particularly cheese. I'll spare your the
disturbing recitative.
USDA further
reported total dairy cow numbers in the U.S. as down, but production per cow up
such that total milk production was 1.3% higher than last year. I blame DNA testing,
nutrition, management, science and progress, generally, but not necessarily in
that order.
On Wall Street, the
NASDAQ and S & P 500 Indices are nearing record territory. I am selling the
VOO which is an S & P 500 Fund and buying the VXX, currently trading at an
all time low near $20 per share. The VXX is linked to a popular measure of the
stock market's expectation of volatility, implied by S&P 500 index options.
So, if there is a shock or surprise to world political or economic stability,
generally the VXX goes up disproportionately, just as the S & P 500 goes
down modestly.
I offer no prophesy
or forecast on common stocks, and do wish to disclose that I am wrong fully
half the time on individual market decisions, and have been for many years.