Opportunities exist; find them with these tips
By Susan Mykrantz
WOOSTER, Ohio -- The dairy industry is pretty exciting right now, according to Gary Sipiorski. Sipiorski is the dairy development manager for Vita Plus in Madison, Wisconsin, and was among the speakers at a recent meeting here for dairy producers.
Sipiorski said producers in the dairy industry have a bright future in the business, but they have to know what is going on beyond their farm gate because agriculture is in a world market.
“The good thing is we are part of the world market,” then adding: “The bad thing is we are part of the world market.”
At the world level, the demand for agricultural products continues to grow.
“The United States has four percent of the world’s population, but 18 percent of the total ground and 21 percent of the fresh water. Japan imports 50 percent of their food, China has 22 percent of the world’s population, 7 percent of the world’s tillable land and 3 percent of the world’s water supply. China also has 36 percent of the world’s rare earth elements.”
Sipiorski reminded producers that with the push towards electric cars and other types of green energy, rare earth elements present just as much of a concern for the United States as foreign oil, as China and Iran have major deposits of the elements needed to produce batteries and other components.
China also has severe corruption at all levels of government and a shortage of land for agriculture because of their dense population.
New Zealand exports 95 percent of their dairy products. They recently had a problem with Dicyandiamide or DCD found in their dairy products. The product is applied to pasture fields to prevent nitrogen from leaching into streams and rivers. DCD produces melamine, which can be harmful to children. Sipiorski said since China had added melamine to their infant formula to raise the nitrogen levels; it would be interesting to hear what they have to say about the issue.
“Currently, 13.5 percent of our milk is exported. We need to keep that going, that is what the world wants,” he said. “It is a hungry world out there.”
He said 850 million people go to bed hungry every night, and roughly 3 billion people eat less than two meals per day. Some 25,000 people die of starvation every day and 23,000 of them are children.
By 2020 the world is going to need 20 percent more meat and poultry. By 2050, the world is going to need 75 percent more food to feed the growing population.
“Farmers feed an incredible number of people,” he said.
Today, one acre of land feeds 1.6 people, according to Sipiorski, but by 2050, one acre must feed four people, when the world’s population reaches an estimated 9.1 billion people.
“In developing nations, the diet consists mainly of rice,” he said. “As their income improves, they add other grains, then fruits and vegetables, followed by poultry, pork, and beef. Dairy is at the top of the list. As people make more money, dairy is the ultimate thing on the table.
He estimates that between 52 to 57 percent of the energy used in the agriculture sector is used to get food from the farm to the plate.
Another challenge is the change in demand for milk and milk products. Fluid milk consumption has declined from 30 gallons per person in 1970 to 20 gallons in 2012, much of that is due to competition from other products.
Should we be concerned? Sipiorski asked. Maybe, but cheese consumption has increased from 17.5 pounds per person in 1970 to 33.5 pounds per person in 2012. Yogurt consumption has gone from 2.5 pounds per person to 22.2 pounds per person, much of that is due to products such as Greek Yogurt.
“Greek Yogurt has had a bigger impact than any other type of yogurt,” he said.
The United States has its own set of challenges; the national debt is at 16 trillion dollars and growing.
“A country is no different than a farm” he said. “You can’t spend more than you take in.”
With the expiration of the Bush era tax cuts, Social Security deductions were increased by two percent. With the expiration of the tax cuts also came changes in inheritance tax rates. As of January 1, 2013, the exemptions went from $5 million ($10 million for a couple) to $1 million and the tax rates went from 35 percent to 55 percent.
“These changes have an enormous impact on farmers and small business owners, said Sipiorski.
“They will have to sell the farm or business to pay the taxes.”
The ethanol mandate also has an impact on livestock producers, as 38 percent of the nation’s corn crop goes for livestock feed and 40 percent goes for ethanol production. Sipiorski said the extension of the farm bill also extended uncertainty for farmers as a majority of the bill funds nutrition programs, leaving about 20 percent of the available funds for farm programs. The wild card is the Dairy Stabilization Act.
“The West wants this program badly,” he said. “They are bleeding.”
Land values are going up and should be factored into production costs for all aspects of the operation, according to Sipiorski.
For dairy enterprises, producers should look at several factors including, but not limited to the net income per cow per acre. They need to look at income per cow, with a target of $4000 per cow, operation costs at least 80 percent of gross income, milk sold per cow, ownership equity of at least 50 percent, current equity of two dollars for every dollar of current liabilities, the farm’s costs to produce 100 pounds of milk; with a target of no more than $16 per hundred, feed costs between 16 to 45 percent of gross income, return on assets of at least 8 percent and return on equity of at least 6 percent, debt per cow of no more than $5000 per cow, debt coverage of no more than 20 percent of gross income needed for payments, asset turnover of at least 2.5 times and total investment per cow ranging between $7500 and $15000 .
“No other enterprise can generate more income per acres than cows,” he said.
There are 9.2 million cows in the United States and Sipiorski said that the industry may lose cows as much as there will be some reshuffling of the herds and dairymen cull their poorer cows and buy better cows from dairymen who are leaving the industry.
“I think the cows will stay, but there won’t be as many,” he said. “You have to know what is right for you. No one is going to give you the money, you have to earn it.”
But producers need to be better than average to survive. Sipiorski said the top producers do things just five percent better than the rest. They make sure forages are put up in top condition, they pay attention to cow comfort, they invest in genetics, they save five percent more calves and they diversify into other areas such as specialty crops or feeding out steers.
Sipiorski said top producers not only know their costs of production, but they do simple things such as bringing the young stock back to the farm, keeping a close eye on cows 30 days before and after freshening, updating their milking facilities; even installing robotic milkers, buying land close to home, expanding their current operation or buying another dairy farm to allow expansion.
“Dairy farming is a three-legged milk stool,” he said. “Take care of the cows, grow good crops or buy what you can’t grow. Make sure you make the right decision for your farm. Make sure you understand the numbers and do what is right for you.”
The meeting was sponsored by First National Bank, Vita Plus and Commodity Blenders.