Beginning in February 2008 most dairy producers in Michigan and other areas of the Mideast Federal Milk Marketing Order will be required to supply milk with no added rbST for fluid milk sales. <br>Only producers meeting this demand will share premiums generated for this Class 1 milk. Producers who continue to use rsBT will be paid the Class III price and may be charged additional costs in getting their milk to these markets.<br>
The lead article in the October 2007 Michigan Dairy Review compares income for producers not using rbST with those who continue to use it. The author, Christopher Wolf, does a thorough job of explaining how prices will differ between these two groups. He also describes in detail the extra costs of feed, labor and supplies incurred with the use of the hormone. I felt his values were credible and conservative and he presented the facts without bias.<br>
Using the values in his example, a 200-cow herd producing 58 pounds per day would receive an additional $2 per cwt. for non-rbST milk, an extra $84,680 annual income. In addition the farm would save $50,194 in extra costs by not using rsBT. There would be a loss of production without the hormone shot.<br>
This was projected at 10 pounds per cow per day at a Class III price of $15.50 per cwt. and amounts to $79,205, annually.
Combining these values results in an additional $55,669 annual income by not using rbST. Of course, these values would vary with individual farms and other factors such as culling rates will affect some decisions, but I believe it will be hard to justify the continued use of rbST in most of our herds.<br>
I found it interesting that for every dollar spent on rbST and its related costs, less than $2 was returned from higher production. Is this a good return on investment? I’m sure many would say yes.
If the extra milk produced had no effect on our total milk supply it would be. Unfortunately our price is derived from supply and demand, and a small increase of 3 to 4 percent in supply can lower prices 10-20 percent or more. Estimates are that one-third of our nation’s herds are on rbST and these cows give 10 percent more milk. <br>
Many of these herds are bigger than average in size, well managed and above average production. If we use average numbers then 33 percent of our cows giving 10 percent more milk equals 3.3 percent more annual milk supply. <br>
How much effect has this had on our milk price in past years?
Whether or not you approve of the use of rbST I believe the decision to discontinue its use will be an economic one. Increased premiums and lower production should result in higher prices. Our cooperatives will need to be sure these premiums reflect the extra expense of producing and securing this milk and extra value charged to consumers.<br>
Probably the most successful price program to be developed has been CWT, Co-ops Working Together. It was organized in 2003 and is fully funded by participating producers. CWTs goals are to manage supply with herd buyouts and increase exports with export enhancements. Independent studies by Dr. Scott Brown, ag economist from the University of Missouri, show a net return of eight to one for checkoff received from supporting producers. Because all producers benefit from higher prices and only about 70 percent of the nation’s milk participates in this voluntary program the total return on investment is actually higher.<br>
If only those who participate could claim the benefits, support would be even higher. The success of this program is even more remarkable when you consider its programs affect less than 2 percent of our annual production. As we reflect on these two issues, rbST and CWT, I think we can draw some conclusions that will be valuable in the future. We have been on a price “roller coaster” the last few years. <br>
Even as we are enjoying decent prices we know from past experience that sometime in the future there will be a “train wreck.”<br>
Do we make individual decisions as with rbST that may help some of us short term, but discounts the price to everyone long term? Do we work together to establish a better price for all as in CWT. Can we develop a pricing system that ensures stable prices at a level that covers costs and returns a reasonable profit? Because dairy farms have a large long-term investment I think most dairy farmers would prefer less volatility when making their decisions. If we are to develop a better way of pricing milk, the logical place to begin is with the co-ops. <br>
When approached to provide non-rbST milk, the co-ops developed a program to meet processor demands, extract additional premiums to provide this service and share those premiums with the farmers supplying that milk. They also provide marketing to producers who continue to use rbST. <br>
The program will have to be adjusted in the future as market conditions change and producers, though their co-ops need to be involved in this process. <br>
As these co-ops work together to meet regional market situations, they could also cooperate through CWT to address national price concerns.<br>
Because milk is perishable and production varies we need both ample supply to meet spikes in demand and adequate processing facilities to handle production peaks. Either of these situations in the past has led to large price fluctuations. To ensure the stable prices to provide a stable supply we need some way to control, both parts of the supply and part of the demand. <br>
A nationwide two-tier price system could accomplish this goal. A price on, for example, 95 percent of the milk at a level that keeps dairy farms profitable and a price on excess milk that gets taken out of normal markets. If we work together to find a better way to price milk I think we could all have a brighter future. On the other hand, we can do nothing and hope we survive the next train wreck.