December 2006

Pennsylvania Dairy Farms: How Many and How Productive? is the first of a three-part series in Lancaster Farming by Penn State’s Jeffrey Stokes, assoc. prof. of Agricultural Economics. “This first part (Dec. 23, ’06) focuses on reasons for changes in the industry, particularly the trend toward fewer, larger farms.” Dr. Stokes identifies “two important drivers of structural change—the profit seeking motive of dairy producers and technology.” He notes that “the trend toward fewer, but larger farms has been occurring in the U.S. since at least World War II. . . Probably the single most important factor. . . is the profit-seeking motive. . . . For any dairy producer with a cost of production per hundredweight that is less than the per hundredweight price of milk, the more milk produced, whether derived from milking more cows or more milk per cow, translates into more profit. . . . The impact of new technology has been directed at increasing per cow milk production and in many cases lowering the cost of production.”

Where Is the Pennsylvania Dairy Industry Headed? is the second in the three-part series by Dr. Jeffrey Stokes in Lancaster Farming (Dec. 30, ’06). Dr. Stokes focuses on factors that affect the decision to enter, exit or expand the dairy farm business. . . . In the case of dairy farm expansions . . . higher milk prices, lower milk price volatility, and technology that results in higher milk per cow for the expanded operation are all important factors affecting the likelihood of an expansion. . . . In terms of exits. . . We also tend to see more exits during times of increased milk price volatility. Higher land prices tend to raise the likelihood of an exit as producers often finance retirement from the proceeds of their liquidated businesses or, in the case of the Amish, relocate where land is less expensive. The data also suggest that land prices and higher milk prices are the two biggest factors affecting the decision to start dairying in Pennsylvania. . . . In short, it means that as farmland prices increase within the sate, as we experience bouts of depressed and/or volatile milk prices, and as per cow productivity increases, we will continue to see a dairy sector in Pennsylvania that is increasingly characterized by fewer, yet larger farms.”

What do consumers really think? is answered by Dr. Terry Etherton in Farmshine (Dec. 22, ’06). “On Nov. 2, the International Food Information Council (IFIC) released a report, Food Biotechnology: A Study of the U.S. Consumer Attitudinal Trends. . . .It provides facts that clearly indicate a significant majority of consumers have no concern about food biotechnology. Approximately 72% of consumers say they are confident about the safety of the U.S. food supply. For those respondents who indicated a concern about some aspect of food safety, most indicated concern about food borne microbial illness (36%) or improper food handling (35%). Only 3% of all consumers indicated biotechnology as a concern. . . . Moreover, only 1% indicated they would like more biotechnology information added to the food label.”

Look for a year of price recovery says Mark Stephenson, Cornell agricultural economist, in Hoard’s Dairyman (Dec.’06). “I see 2007 as a recovery year for milk prices. I am forecasting the Class III milk price to be up by about $1.80. Feed and energy-related expenses still will be high and milk checks will not quite restore incomes to the levels that we had in 2005 and 2005, but it should be a nice recovery. . . . 2007 could be a year of significant price gains if milk supplies tighten or export markets expand even more. . . . Many of you should consider a marketing plan that would include trigger levels for futures market actions.”

Huge potential for dairy sales (Dairy Herd Management, Dec. ’06). “Dairy sales could increase by billions of pounds simply by meeting the ‘unmet demand’ of consumers. That’s the message that Tom Gallagher, CEO of Dairy Management Inc., shared at the group’s annual meeting. . . For example, the advent of plastic, re-sealable containers of milk in fast-food restaurants, school and other venues. . . . However, in order to tap into unmet demand, the dairy industry needs to work on its processing infrastructure. The current infrastructure is great at producing traditional dairy products, but not so good at adapting. . . The industry must adapt to a consumer-driven marketplace and provide new and varied products, such as Hispanic cheese, lowfat cheeses and value-added milk.

PFB Testifies on Proposed Expansion of Dairy Premiums (Country Focus, Dec. ’06). “Pennsylvania Farm Bureau urged the PA Milk Marketing Board to expand the current premium program by capturing premiums for Class I milk that moves beyond Pennsylvania borders. . . . Currently, the premium is only paid on Class I milk that is produced, processed and sold in Pennsylvania. . . . PFB testified. . . for the PMMB to use its authority to make all Pennsylvania-produced Class I milk eligible for premiums—regardless of where it’s processed—so long as it is sold in Pennsylvania or other states with mandated premiums.”

Penn State Offers Free Nutrient Trading “Primer” (Country Focus, Dec. ’06). “The primer provides information needed to understand the benefits and challenges of water-quality credit trading, the mechanics of a trade and the questions that should be asked as states develop their programs. Pennsylvania’s program will allow point-source dischargers such as municipal and industrial wastewater treatment plants to purchase ‘credits’ from nonpoint sources, such as farms and other entities where precipitation and terrain influence the movement of pollutants into streams and rivers. . . . An electronic copy of the Penn State publication is available on the Web at http://agenvpolicy.aers.psu.edu/.

Taking action to avoid lawsuits (Manure Manager, Nov/Dec. ’06). Attorney Eldon McAfee writes, “The most effective method of protecting against nuisance lawsuits is to implement management practices that minimize the impact of an operation on neighbors. Legal protections and communications with neighbors all depend upon taking steps to minimize odors and other potential nuisance conditions.” McAfee provides a list of steps including: “Meet with concerned neighbors to explain your operation. . . ; Stay current on new technologies and management practices to minimize odor, flies, etc.. . . ; consider purchasing acreages that are for sale near your operation. The residences can either be rented out or re-sold with a deed restriction establishing a nuisance easement or covenant.” McAfee’s complete list is available on the Internet at http://nationalhogfarmer.com/mag/farming_nuisance_lawsuits_rise/.

The Small-Employer Pension Plan Dilemma is a “Smart Answers” feature at BusinessWeek Online. “Providing an employee retirement plan is a powerful recruitment and retention for small-business owners. If many of the other small firms in your niche are offering retirement plans, it will be especially important for you to have some kind of plan you can put on the table in a job interview.” The article goes on to discuss 401(k) plans and alternatives such as SEP (Simplified Employee Pension plans) and SIMPLE (Saving Incentive Match Plans for Employees of Small Employers) and provides links to government brochures on how to set up and manage such plans. Access the article at http://www.businessweek.com/smallbiz/content/oct2006/sb20061009_678887.htm?chan=search

PA leasing dairy barns to spring chickens (Centre Daily Times, Dec. 28, ’06). “The state has leased its first diary barns as part of a wider effort to bring younger farmers into a dairy industry that is getting older and losing farms. The ‘Capital Dairy,’ on the grounds of the old Harrisburg State Hospital in suburban Harrisburg, is now occupied by 76 Holsteins owned by Andrew Laudenklos after the state renovated the building and searched for an occupant. Laudenklos, 23, was picked from among 16 applicants as the state Department of Agriculture tries new things to bring younger farmers into an industry whose numbers are declining. . . . Laudenklos, who moved in on Dec. 18, will pay $1,000 a month for three to five years to lease the barn, a pasture and a nearby two-story house for his family. . . . In a few years, he said, he hopes to buy his own farm.” Read the complete story at http://www.centredaily.com/mld/centredaily/news/local/16332434.htm

Farmers Say No to Animal Tags (BusinessWeek, Dec. 19, ’06). “In its Michigan test, the National Animal Identification System gets a rude reception from small farmers who say it invades their privacy. . . . The National Animal Identification System (NAIS) is a program initiated by the federal government to attach a radio frequency identification device (RFID) to each of the approximately 40 million cows, sheep, chickens, goats, pigs, horses, and other animals on 1.4 million U.S. farms, enabling regulators to quickly track and respond to mad cow disease, bioterrorism, and other such calamities. The program is billed as "voluntary" by the U.S. Department of Agriculture (USDA), but that term is used about as loosely as a staff sergeant's call for volunteers. Already there is talk that states failing to enforce NAIS could lose USDA funding for certain programs, and that farmers whose premises and animals aren't registered could encounter trouble should their animals be shipped out of state and thus be deemed part of ‘interstate commerce.’” Read the complete article at Animal Tags.

Study Shows Widening Rural-Urban Income Gap (Lancaster Farming, Dec. 9, ’06). “There is an $8,637 per capita income gat between rural and urban Pennsylvania, according to research recently released by the Center for Rural Pennsylvania.” East Stroudsburg and Penn researchers “found that, since the 1980s, the income gap between rural and urban Pennsylvania has been growing and that the high-paced total income growth in urban counties and the population growth in rural counties have contributed to the gap. . . . In 2001, the per capita income in Pennsylvania rural counties was $23,941, while in urban counties the per capita income was $32,578. . . the highest per capita incomes were in Montgomery, Chester, and Bucks counties. . . . The lowest per capita incomes were found in Tioga, Greene and Huntingdon counties.” The report is available online at http://www.ruralpa.org/income_gap_2006.pdf.

Finding the Right Tax Pro (American Nurseryman, Dec. 1, ’06). Business author Mark Battersby gives recommendations, including: “Generally, experts suggest it is best to find a professional focusing on clients that mirror your situation. . . . The best way to find someone to prepare (your) operation’s tax returns or to render needed tax advice is to get a referral from business associates, your banker or your attorney. . . . And remember, the professional used for tax advice need not be the same professional used for return preparation. . . . It is not ‘tacky’ to discuss fees before engaging the services of a professional, although money should not be the sole criteria for selecting a candidate. . . . Simply preparing an accurate, timely and cost-effective tax return is all you may need today. Tomorrow, however, your needs could expand into more complex tax strategies, transaction analysis or even tax-sheltered investments.” Read the complete article at Tax Pro (scroll down to article link).

Market Psychology (Dairy Outlook, Dec. ’06). Dr. Ken Bailey writes, “The market is still assimilating high feed costs and strong international demand for protein in forming price expectations. . . . As of press time Class III futures for all of 2007 are just $1.07 per cwt above the 5-year average . . . . If milk producers locked in current milk and feed prices there wouldn’t be many dollars left over to encourage further expansion. So will milk prices rise any further as we enter 2007? My guess is no.” Read the rest of this article and the rest of the December Dairy Outlook at http://dairyoutlook.aers.psu.edu/reports/Pub2006/DairyOutlookDec2006.pdf.

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