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12/9/2011
1
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
“WhyShipWaterWhenYou’rePaidforSolids?”
Eric C. Schwab, Ph.D.Darin R. Bremmer, Ph.D
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Overview
• Consumer trends / dairy product use
• Meeting market demand?
• Farm – level examples & trends
• What knocks us off track?
12/9/2011
2
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
TrendsinConsumerDemandforDairyTotalProduction
Fluid* Butter NFDMAmerican Cheese
Other Cheese
5‐Yr Avg. Million Pounds
1985‐1989 54,256 1,223 1,360 2,924 2,865
1990‐1994 54,779 1,366 948 2,911 3,747
1995‐1999 54,763 1,244 1,185 3,312 4,372
2000‐2004 54,046 1,307 1,446 3,709 5,224
2005‐2009 53,897 1,526 1,701 4,006 6,041
% Annual Change
‐0.03% 1% 1% 1.5% 4.4%
Source: http://www.ers.usda.gov/publications/ldp/ldptables.htm
* Domestic milk. Butter, NFDM, and cheeses include imports
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
TrendsinConsumerDemandforDairyPerCapitaAnnualConsumption
Source: http://www.ers.usda.gov/publications/ldp/ldptables.htm
0
5
10
15
20
25
30
35
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Fluidx10
Butter
American Cheese
Other Cheese
Evap. & Cond.
Frozen
Dry Milk Products
12/9/2011
3
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
11.21.11 Prog. Dairyman pg18
Marketsegmentswithtremendousgrowth
• ‘Greek’ yogurt– Higher protein
– 2006 sales @ $60 Million with 2011 sales
projected at $1.5 Billion
– WSJ 07/29/2011: growth is ‘nothing short of astronomical’. New $100mil ID plant
• The granola bar evolution
• China (and others)– ‘One glass per kid’ (~126 mill lbs/d)
• ~3.5 million cows @ 35 lbs/hd/d
– Increasing wealth
– Supply likely from imports
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
SoHowDoWeRespond?
• The world is getting smaller
– And more affluent
• The market is global and we’re players
• Like it or not, market segments respond to the ‘local, sustainable, slow, natural, pure, etc.’ market essence
– ‘Greek’ yogurt is a prime example (it ain’t Greek)
• Produce a product to fit demand
12/9/2011
4
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
‐0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
Jan‐00
May‐00
Sep‐00
Jan‐01
May‐01
Sep‐01
Jan‐02
May‐02
Sep‐02
Jan‐03
May‐03
Sep‐03
Jan‐04
May‐04
Sep‐04
Jan‐05
May‐05
Sep‐05
Jan‐06
May‐06
Sep‐06
Jan‐07
May‐07
Sep‐07
Jan‐08
May‐08
Sep‐08
Jan‐09
May‐09
Sep‐09
Jan‐10
May‐10
Sep‐10
Jan‐11
May‐11
Month -Year
Value ($/lb)
Fat
Protein
OS
FederalOrderButterfat,Protein,andOtherSolidsPrices:Jan2000‐Present $/lb Average
Fat $1.57
Protein $2.49
OS $0.13
Source: http://future.aae.wisc.edu
Prices Reflect Demand?
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
PercentofClassIIIPriceContributedbyEachComponent:Jan2000‐Present
‐5
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
Jan‐00
May‐00
Sep‐00
Jan‐01
May‐01
Sep‐01
Jan‐02
May‐02
Sep‐02
Jan‐03
May‐03
Sep‐03
Jan‐04
May‐04
Sep‐04
Jan‐05
May‐05
Sep‐05
Jan‐06
May‐06
Sep‐06
Jan‐07
May‐07
Sep‐07
Jan‐08
May‐08
Sep‐08
Jan‐09
May‐09
Sep‐09
Jan‐10
May‐10
Sep‐10
Jan‐11
May‐11
Month -Year
Percen
t
Fat
Protein
OS
% of Total Value
Fat 38%
Protein 59%
OS 3%
12/9/2011
5
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
What’sthatmeanonthefarm?
• More components to market = $$$ to you
– Protein: out‐values fat for 121 out of 141 (91%) months
• Example herd:
– 500 milking @ 80 lbs/hd/d reference
– FMMO30 average components (3.71 BF, 3.03 TP)
– What if we improve component output by 5%?
– Assumptions• Look only at Gross Returns from increased fat and protein output
• Ignore Other Solids (can’t really impact, not worth much)
• Too many ‘what if’s’ and ‘it depends’ situations to look at Net
• Not considering PPD, SCC, etc. etc.
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Grossreturn/hd/dat5%increase
0.30
0.35
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
Jan‐00
May‐00
Sep‐00
Jan‐01
May‐01
Sep‐01
Jan‐02
May‐02
Sep‐02
Jan‐03
May‐03
Sep‐03
Jan‐04
May‐04
Sep‐04
Jan‐05
May‐05
Sep‐05
Jan‐06
May‐06
Sep‐06
Jan‐07
May‐07
Sep‐07
Jan‐08
May‐08
Sep‐08
Jan‐09
May‐09
Sep‐09
Jan‐10
May‐10
Sep‐10
Jan‐11
May‐11
Sep‐11
Year ‐ Month
Gross Returns $/hd/d
Average of $0.53/hd/d gross return over ~12
years
12/9/2011
6
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
What’sthatmeanonthefarm?
• Over ~12 yr period, average gross return of $0.53/hd/d
• Example herd:
– 500 milking @ 5% increase in component yield
– $265/d or $7,950/mo or $95,400/yr
– Or $1,144,800 over scenario span
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
HowAreWeResponding?
12/9/2011
7
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
UpperMidwestFMMO30– FatandProteinPercent
2.50%
2.70%
2.90%
3.10%
3.30%
3.50%
3.70%
3.90%
4.10%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
HowAreOthersResponding?
12/9/2011
8
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Upper MW vs. Pacific NW – Protein %
2011 Protein spread persists
Courtesy of Adisseo
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Upper MW vs. Pacific NW – Butterfat %
For 2011 Butterfat has converged
Courtesy of Adisseo
12/9/2011
9
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
UpperMWvs.Pacific.NWTotalYieldinMillionPounds
0
5000
10000
15000
20000
25000
30000
35000
40000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FMMO30
FMMO124
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
It’sTimetoShipSolids
• Can we change these trends in the Upper Midwest?
• Can we improve milk components by 5%?
• Cheese plants are expanding in Upper MW.
• More people are ‘chewing’ their milk.
12/9/2011
10
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Farm‐levelExamples
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Milk True Protein, Monthly Average, %
2.9
2.95
3
3.05
3.1
3.15
3.2
3.25
3.3
3.35
Aug 03
Jan 04
Jun 04
Nov 04
Apr 05
Sep 05
Feb 06
Jul 06
Dec 06
May 07
Oct 07
Mar 08
Aug 08
Jan 09
Jun 09
Nov 09
Apr 10
Sep 10
Feb 11
Jul 11
Began balancing for Lysine and Methionine
HerdA‐ Protein
Feeding DLP
7% Increase
12/9/2011
11
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
HerdA‐ ButterfatButterfat, Monthly Average, %
3
3.2
3.4
3.6
3.8
4
Aug 03
Jan 04
Jun 04
Nov 04
Apr 05
Sep 05
Feb 06
Jul 06
Dec 06
May 07
Oct 07
Mar 08
Aug 08
Jan 09
Jun 09
Nov 09
Apr 10
Sep 10
Feb 11
Jul 11
Feeding DLP
13% Increase
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
HerdB– FatandProtein
2.7
2.8
2.9
3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4
4.1
4.2
4.3
4.4
4/1/07
5/1/07
6/1/07
7/1/07
8/1/07
9/1/07
10/1/07
11/1/07
12/1/07
1/1/08
2/1/08
3/1/08
4/1/08
5/1/08
6/1/08
7/1/08
8/1/08
9/1/08
10/1/08
11/1/08
12/1/08
1/1/09
2/1/09
3/1/09
4/1/09
5/1/09
6/1/09
7/1/09
8/1/09
9/1/09
10/1/09
11/1/09
12/1/09
1/1/10
2/1/10
3/1/10
4/1/10
5/1/10
6/1/10
7/1/10
8/1/10
9/1/10
10/1/10
11/1/10
12/1/10
1/1/11
2/1/11
3/1/11
4/1/11
5/1/11
6/1/11
7/1/11
8/1/11
9/1/11
10/1/11
11/1/11
Protein %
Fat %
4% Increase BF
7% Increase TP
12/9/2011
12
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
WeCANproducesolidsthemarketdemands
• 5% and greater improvements are possible
– Using content as an example
• You don’t have to sacrifice milk yield to obtain high component percentages
– Example herds are currently 30K RHA• 1000 and 1850 head herds
• Improvements realized in the face of “Murphy’s Law”
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
WeCANproducesolidsthemarketdemands
• These improvements realized in the face of “Murphy’s Law”
– (What knocks us off the tracks?)
12/9/2011
13
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
HerdA– ButterfatChallengesButterfat, Monthly Average, %
3
3.2
3.4
3.6
3.8
4
Aug 03
Jan 04
Jun 04
Nov 04
Apr 05
Sep 05
Feb 06
Jul 06
Dec 06
May 07
Oct 07
Mar 08
Aug 08
Jan 09
Jun 09
Nov 09
Apr 10
Sep 10
Feb 11
Jul 11
13% Increase
New EtOH plant
Really ‘fast’ starch
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
HerdB– FatandProteinChallenges
2.7
2.8
2.9
3
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4
4.1
4.2
4.3
4.4
4/1/07
5/1/07
6/1/07
7/1/07
8/1/07
9/1/07
10/1/07
11/1/07
12/1/07
1/1/08
2/1/08
3/1/08
4/1/08
5/1/08
6/1/08
7/1/08
8/1/08
9/1/08
10/1/08
11/1/08
12/1/08
1/1/09
2/1/09
3/1/09
4/1/09
5/1/09
6/1/09
7/1/09
8/1/09
9/1/09
10/1/09
11/1/09
12/1/09
1/1/10
2/1/10
3/1/10
4/1/10
5/1/10
6/1/10
7/1/10
8/1/10
9/1/10
10/1/10
11/1/10
12/1/10
1/1/11
2/1/11
3/1/11
4/1/11
5/1/11
6/1/11
7/1/11
8/1/11
9/1/11
10/1/11
11/1/11
Protein %
Fat %
4% Increase BF
7% Increase TP
PUFA
Butyric Haylage
Wet HMSC
12/9/2011
14
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Whatcanholdusback?
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
HeatDamageandSpoilage
• Heat damaged protein is unavailable to rumen microbes
– Decreases microbial protein production
– Binds sulfur‐AA’s
• Spoilage
– Mold and rotten silage on top and sides of bunkers. Butyric haylage.
– Removing spoilage is important for microbial protein production
12/9/2011
15
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
TheGood,theBad,andtheUgly
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Consistent,HighQualityBy‐products
• Difficult to balance diets with inconsistent by‐products
• Rumen microbes need time to adapt to dietary changes
• Bypass proteins supply metabolizable protein that can be directly incorporated in to milk protein– Many ingredients used to supply bypass lysine are heat processed
– Overheating will reduce lysine digestibility
12/9/2011
16
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
ByproductChallenges
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Carbohydratesareimportant
• Rumen microbes
– Digest a variety of carbos
– Grow most rapidly on starch and sugars
• Rumen microbes need adequate surface are to digest starch in corn kernels
– Kernels in corn silage must be adequately processed
– Corn grain (dry and high moisture) has to be processed properly
• Ensiled corn (either corn silage or high moisture) needs adequate time to “soften”
12/9/2011
17
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
FactorsAffectingMilkFatSynthesisCanbeAdditiveandIntertwined
Milk FatDepression
High ROP Reduced Rumen pH
Amount andType of FatRumensin
Interacting factors make it difficult to solve MFD problems
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Arewegoingtorespond?
• Focus on the end‐user
– Think global, act local
12/9/2011
18
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
TrendsinConsumerDemandforDairy
Fluid Butter NFDMAmerican Cheese
Other Cheese
Years Million Pounds
1985‐1989 54,256 1,223 1,360 2,924 2,865
1990‐1994 54,779 1,366 948 2,911 3,747
1995‐1999 54,763 1,244 1,185 3,312 4,372
2000‐2004 54,046 1,307 1,446 3,709 5,224
2005‐2009 53,897 1,526 1,701 4,006 6,041
% Annual Change
‐0.03% 1% 1% 1.5% 4.4%
Source: http://www.ers.usda.gov/publications/ldp/ldptables.htm
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Arewegoingtorespond?• Focus on the end‐user
– Think global, act local
• It CAN be done
– Improve gross income and IOFC
12/9/2011
19
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
Arewegoingtorespond?• Focus on the end‐user
– Think global, act local
• It CAN be done
– Improve gross income and IOFC
• Nutrition and Management
– The technology is there to improve components
– Minimize factors that cause variation
– Consistency is King
KeepingaSteadyPulseinanUnsteadyMarketplace
VitaPlusDairySum
mit2011
“WhyShipWaterWhenYou’rePaidforSolids?”