Monthly Archives: March 2018

There’s a war to win for our health and our dairy producers

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NinaTeicholz0181Learn, then comment! Deadline: March 30!

By Sherry Bunting, Farmshine March 2, 2018

STATE COLLEGE, Pa. – Never did Nina Teicholz envision herself talking about nutrition to groups of dairy and livestock producers and hearing how important it was to them to hear that the work they care deeply about and the product they produce is good, great, healthy, in its full-fat form after decades of being maligned by flawed advice for a low fat or fat free diet.

Nina Teicholz-27“Not only has this advice been bad for people, it is especially bad for children,” said Teicholz as she told her story of a decade of investigation met by intimidation uncovering stories of a scientist who bullied others who had alternative hypotheses and a powerful nutrition elite still controlling the food supply through their grip on Dietary Guidelines.

The author of New York Times best seller The Big Fat Surprise has not only challenged but also disproved the anti-fat dogma of 40 years and revealed the politics that have overshadowed the science in the confusing world of diets and nutrition.

In fact, she says, the power of an elite class of experts who control nutrition guidelines that in turn control the food supply is still strong and very tough to overcome – even when the evidence is not on their side.

imagesTeicholz’s Big Fat Surprise has had a ripple effect in the food industry among consumers since 2014,but the dietary elites have challenged her each step of the way.

And there’s a lot of war left to be fought for what is right.

This is especially true when it comes to the milk the USDA prohibits from being served in the National School Lunch program or through Women, Infants and Children (WIC) programs.

The intimidation that Teicholz and others have endured shows just how much is at stake and just how tough the politics are in trumping the science. With a steady drumbeat of proof, one would think the bad advice could be easily overturned, but the work is hard and it needs to continue, Teicholz indicates.

(Not only are the flawed guidelines affecting health, but also reverberating in their economic effects on family farms across the country, in part aided by the dairy industry accepting a role in working alongside former first lady Michelle Obama when it came to school meals, allowing her to deal the final blow to milk in school, while accepted yogurt on the plate as a compromise.)

Nina Teicholz kicked off the 2018 Pennsylvania Dairy Summit last Wednesday, Feb. 21 here in State College, treating nearly 500 dairy producers and industry representatives to an inside look at her 10 years of investigative journalism on this topic that began when her editor assigned her a piece on defining trans fats.

Little did she know then where this would lead her today. Who would have thought that the former vegetarian from Berkley, California and New York City would end up uncovering what may be the biggest nutritional tragedy done to consumers and dairy and livestock producers, worldwide.

She told Summit attendees that she began to suspect a problem when her initial inquiries started revealing a pattern of resistance.

“That’s where my deep dive into the world of fats began,” said Teicholz. “The fats we obsess about that have made us all crazy over what kind to eat and how much.”

She started hearing about scientists getting “visits” and papers being yanked from scientific journals. She started feeling the intimidation, herself, as she widened her investigative scope, reading scientific papers and seeking interviews with scientific experts at some of America’s most trusted universities and institutions.

“I would be interviewing scientists at top universities and they would hang up on me,” Teicholz revealed. “I thought, am I investigating the mob? What’s going on?”

Her deep dive into fats took her through a decade of work reading thousands of scientific papers and doing hundreds of interviews to write a book investigating the research on all fats in the diet.

“Every idea has a beginning, like an acorn to a tree,” said Teicholz, “and this had its beginning when President Eisenhower had a heart attack. This is when the concern about heart disease rose out of nowhere to be labeled the nation’s leading killer.”

Many ideas of causes were initially looked at, and then University of Minnesota physiology scientist Ancel Keys posited the cholesterol theory, that like hot oil down a cold stove pipe, would clog arteries and cause heart attacks.

Through her research, Teicholz discovered that so in love was Keys with his own theory that colleagues described his approach to the work of others as “bullying.”

“They described him as very charismatic and able to debate an idea to death. And, yes, a bully,” she said. “Once he was able to get his idea implemented into the American Heart Association, it was on.”

By 1960 he was on the nutrition committee and by 1961, “that acorn had grown into a giant oak tree of the advice leading to what we have today. The world transitioned from saturated to unsaturated fats,” said Teicholz. “But rarely do checks for common sense happen in the world of nutrition. Keys became ‘Mr. Cholesterol’ on the cover of Time Magazine with just one study.”

This study was not a randomized controlled study, but rather a series of contacts in seven countries relating diets to disease in middle-aged men.

Teicholz spent six months studying the Keys’ study. While it involved seven countries, the study looked only at the diets of middle-aged men and created this “big bang” theory. His study had been funded by the National Institutes of Health (NIH).

“But what happened is that Keys already had his idea. He loved his idea, and he set out to find what he found,” said Teicholz.

She outlined the numerous problems with the Keys study. It did not include countries with high consumption of fats and low rates of heart disease, which would have destroyed his hypothesis. He went to countries that were ravaged by war, not the countries that were eating well.

“And his star subjects were on the island of Crete, mainly hard-working peasants he worked with for three months one of which was during Lent, where he clearly undercounted the amount of fat these people ate,” Teicholz observed.

What was mind-boggling for Teicholz as she went through the record is that absolutely none of this theory — or the 40 years of advice that followed — is based on randomized controlled clinical trials.

“The government and the American Heart Association understood the evidence was weak, so the NIH funded a study to follow people through their death to set out to prove Keys’ theory this way,” she said.

Meanwhile it was being treated as gospel.

After more than a decade and following 75,655 men and women for one to 12 years, some of them with controlled in-patient diets, “The results showed no effect of saturated fats on cardiac mortality or total mortality!”

In fact, there was no effect whether subjects consumed 18% of their dietary calories in fat or 6%.

At the same time, Teicholz reports that people in the study, who had replaced fats with soy and margarine, had higher rates of cancer.

So, by this time in the presentation, it’s hard to keep the hair from standing up on your neck, and Teicholz asks the question: Why is this advice still around? Why is it still controlling food programs and markets?

“The politics explain so much more than the science,” she said. There is a small group of nutrition aristocrats controlling who they invite to lead panels or grant appearances, and they sit on editorial boards of medical journals and control these institutions.

“This is still true today,” said Teicholz, noting how an invitation for her to join a panel at an international conference was later withdrawn because the other people on the panel were key members of the U.S. Dietary Guidelines committee.

“This relative small (but obviously powerful) group does not include critics. They are the reason why we still have these ideas even if they are wrong,” said Teicholz.

An educated writer and scientist herself, Teicholz understands that scientists are trained to discover for themselves, but selective bias crept into nutrition the moment Ancel Keys at the University of Minnesota, fell in love with his own hypothesis.

Nina Teicholz-25A colleague of Keys had done research with 5000 people around the same time, but it didn’t see the light of day. This Minnesota Coronary Survey found no difference from fat in the diet between treatment and control. It is the biggest and most well controlled study of its time but was not published for 16 years!

Teicholz explained further that when the competing research was ultimately published, long after the Keys hyposthesis had grown into an oak with roots, it was only published in an out-of-the-way journal.

Meanwhile, it was the 1980s and Senator George McGovern initiated the Dietary Goals report, written by staffers with no background in nutrition, some of them vegans. This formed the basis for the food pyramid.

From that point forward, Teicholz showed graphs of the increase in obesity and diabetes. But as a science-minded journalist, she reminded her audience that the graph, by itself, didn’t show causation. However, other studies have proved causation, and she shared those as well.

In fact, studies have been showing that Americans really have been following the flawed dietary guidelines and that while consumption of full fat dairy is down, and pounds of fruits and vegetables up 20 and 30%, along with grains and cereals up 30%, obesity and diabetes has risen exponentially.

Nina Teicholz-29“We follow the guidelines and eat more calories, but all of those extra calories are coming from the increase in carbs,” said Teicholz.

So the third rail some say we dare not touch is that the hallmark recommendation of 60 minutes of exercise — meant to accompany the promotion of a low fat diet – was touched by Teicholz during her presentation.

The kicker is that Americans are not getting fat because they don’t exercise enough, she said. Not one study could show where this 60-minutes of exercise and a lowfat diet actually helped.

Nina Teicholz-30“We cannot exercise ourselves out of a bad diet,” said Teicholz. “Is it our own fault or is it the advice we have been given? I’m here to tell you that saturated fats do not cause cardiovascular death, and Canada is already working to remove the percent of fat requirement from their guidelines.”

In fact, Teicholz cited the work of Salin Ysuf, a leading cardiology specialist. His work showed that patients who ate the least amounts of fat had the highest risk of stroke and those who ate more, lived longer.

“We are in the midst of a paradigm change,” she said. “Cholesterol in the diet has not been proven to increase blood cholesterol. Eating egg whites instead of eggs has accomplished nothing.”

In a small step in 2013, the American Heart Association dropped its caps on cholesterol and this also occurred in the 2015 Dietary Guidelines. However, the recognition that a low fat diet doesn’t work has not made it to the dietary guidelines elite, and the next cycle to change them doesn’t happen until 2020.

“Fat is not making you fat,” said Teicholz. “It’s like a tragic horror movie. The truth is the fat we eat is not the fat we get.”

So what does cause disease? Teicholz explained the carb insulin hypothesis, where carbs become like glue in the bloodstream, and the body has to secrete insulin, a hormone, so the body socks this away as fat. She explained that not all carbs have the same effect and that gaining and losing weight also has a hormonal aspect being found as a key culprit in obesity and diabetes.

“There is a growing drumbeat of positive research coming out showing that whole dairy, full fat dairy, is good for cardio risk factors and that there should be no caps on cholesterol in the diet; however, the caps on saturated fat remain,” she said.

The reason the Dietary Guidelines are so powerful is that they control so much of what we think about what we are eating, according to Teicholz. She noted that soy milk has been allowed as a replacement for dairy milk in the Dietary Guidelines.

This is huge because these guidelines dictate what schools can serve, the WIC program and so many other aspects of nutrition where the government is involved.

“The Dietary Guidelines for Americans have huge control over the food supply, and trying to change them is so difficult because those in charge are so incredibly powerful,” said Teicholz.

This is why she has initiated the Nutrition Coalition to fight for our diets. Her aim is to have evidence-based Dietary Guidelines, and to see an end to the promotion of 60 minutes of exercise and a low fat, low sodium diet as what’s good for our children.

“This advice has not worked for people, and especially not for kids,” said Teicholz. At best, the 60 minutes of exercise is disingenuous when accompanied by low fat, high carb dietary advice, and at worst, the promotion of low fat and fat free is harmful.

Alas, her attempts so far, including a piece in a British medical journal about changing the flawed Dietary Guidelines was met with a petition signed by 180 nutrition aristocrats on the Dietary Guidelines committee, who demanded a retraction of Teicholz’s paper.

“It took them a year to put it out, but the BMC did their review and stood up strong for my paper,” she said. “This shows us just how much is at stake and how tough the politics are in this field of nutrition.”

Learn more about Teicholz’s work and the Nutrition Coalition she founded as well as how to comment by March 30, 2018 on issues to review in the Dietary Guidelines Advisory Committee’s next 5-year review for the 2020-2025 guidelines.
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To read other agmoos articles / columns authored by Sherry Bunting on the School lunch program and dietary guidelines from the past several years, here is a link: https://agmoos.com/2015/04/24/nutrition-politics-kids-and-cattle-caught-in-the-crossfire/

About Nina Teicholz: Nina is an investigative journalist and author of the International (and New York Times) bestseller, The Big Fat Surprise (Simon & Schuster). The Economist named it No. 1 science book of 2014, and it was also named a 2014 *Best Book* by the Wall Street Journal, Forbes, Mother Jones, and Library Journal. The Big Fat Surprise has upended the conventional wisdom on dietary fat and challenged the very core of our nutrition policy. A review of the book in the American Journal of Clinical Nutrition said, “This book should be read by every nutritional science professional.”

Before taking a deep dive into researching nutrition science for nearly a decade, Teicholz was a reporter for National Public Radio and also contributed to many publications, including the Wall Street Journal, New York Times, Washington Post, The New Yorker, and The Economist. She attended Yale and Stanford where she studied biology and majored in American Studies. She has a master’s degree from Oxford University and resides in New York City.

 

Dairy at a crossroads Part 2: Blinders off, seek help to navigate

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PA-Farm-Financials(CrossroadsPart2)Fig1

Fig. 1 from the farm financials in the Pennsylvania Dairy Study shows average annual rate of return on assets 2011-16 for Pennsylvania small, medium and large (over 500 cows) farms compared with a 3-state average (NY, MI, WI) for small, medium and large farms. The Center for Dairy Excellence confirms that producers of all sizes are calling to have Dairy Decision Consultants come out to help them figure out how to move forward and lower their cost of production or the best scenario for exiting the dairy business. 

By Sherry Bunting, Farmshine, March 2, 2018 

BROWNSTOWN, Pa. — Every avenue of approach to a four-way crossroads comes with a temporary stop or yield and the need to know whether to turn one way or the other, double back, or drive forward. Staying put is only an option for the time it takes to know which way to go.

For dairy producers at this turning point, not one of these options can be exercised without knowing the farm’s cost of production and its equity position to decide upon a direction for what’s ahead.

Difficult discussions are being had around farm kitchen tables across the country. Seek out the help that is available to navigate, say dairy lenders and consultants interviewed recently by Farmshine.

“Don’t internalize too much or to try to do it on your own. Don’t be afraid to reach out for help,” says Dale Hershey of Univest Bank and Trust. “Don’t wait to raise your hand until after it’s too late. There are people out there, good people, who can give advice and ways to do this at little or no cost.”

Competitive cost of production is shaping the future of the dairy industry. While we hear about the multi-owner multi-site dairies with nearly 100,000 cows and a very low cost of production, size does not dictate the ability to compete.

“It is being achieved here. We have 100-cow dairies and 1000-cow dairies with very competitive cost of production,” says Mike Peachey of Acuity Advisors and CPAs.

He explains that the Northeast has historically had a higher cost of production for a variety of reasons.

“We have been saved by having higher premiums for our milk, but as those premiums erode, the competitiveness of our operations is exposed,” says Peachey. “It comes down to how well-managed a dairy operation is — regardless of size — and how competitive we can get in cost of production.”

“We used to have a milk price advantage in Pennsylvania. That is gone,” adds Mike Hosterman AgChoice Farm Credit business consultant. “We are less than 25 to 50 cents difference to New York, when it used to be $1.00.”

They both see a wide range in cost of production among dairy farms that can vary by $2 to $3/cwt.

“There is easily a variance (in profitability) from bottom to top of at least $1000 per cow, so it really is segmented by thirds,” says Peachey. “We have a top third with a very competitive cost of production, a middle third hanging in there and a bottom third making tough decisions that carry a lot of emotion.”

“So much of the difference comes back to debt, especially for younger farmers,” says Hershey. “Dairy is tough to get into, and the biggest thing is how you come in. Those beginning farms won’t survive without capital or backing from family. We will have some startups this year, but fewer than other years.”

In this business of large capital investments, Hosterman observes debt per cow creeping higher.

“If you go back 10 years, debt was just under $3000/cow. As milk prices go through these wild swings, the trendline was still slowly increasing so producers could afford that increase. Now the price is leveling out while debt per cow can be over $5000 or $6000,” he reports.

“As lenders, we’re all stepping up to help these producers, but we may not have the capacity to help them all.” He notes that refinancing options, different debt structures, and FSA loan availability are some options.

While the fundamentals of future dairy demand and proximity to consumers in the eastern U.S. would suggest a key place for small farms here, Hershey is realistic about the hand being dealt.

DPAC(farmbill)9261(ExtraPhoto)“To be in this for the long haul, we have to look ahead and know what we’re dealing with,” he says, wistfully reflecting upon growing when his father made a good living with 40 registered dairy cows.

“That model is pretty tough to cash flow right now. I see a return to where we were 40 years ago, where farms here had different things going on, multiple income streams, seeing more farms diversify to strengthen their positions,” says Hershey. “If producers are solely dependent on their small dairies, it will be very tough unless they have a very low cost of production.”

Key advice? “Bring a team in around you.”

“Dairy producers are managing expenses and monitoring cash flows, budgets and cost of production throughout the year. They are bouncing ideas off their advisors and consultants to be more competitive,” says Mike Firestine of Fulton Bank. He was recently recognized by American Bankers Association with the Bruning Award for dedicated leadership.

Extension educators also report they are receiving very high interest from dairy farmers wanting to do financial analysis because of varying degrees of stress already experienced over the past three years.

As for Acuity, Peachey regularly looks at clients’ positions around four key areas: cost of production, percent equity, profitability and cash flow, providing information and context for discussions about where they stand, what is their competitive position and where they think they are going to be not just now, but a year from now.

Because things change from year to year due to many variables, including weather and markets, Peachey says it’s important to be monitoring all the things that go into that “cost of production stew,” including milk quality, good internal herd growth, good milk components and feed conversion.

Armed with a team approach, and the numbers, they can uncover how well the animal husbandry is being managed, the breeding program, pregnancy rates, heifer replacement programs, milk production, especially components, and milk quality.

“Done well, these things add up,” says Peachey. “Small farms can counteract some of the competitive disadvantages on the cost and income sides, by having their good management in all these areas add up.”

This becomes cumulative math. For each year that one dairy is not as competitive as another on cost of production (COP), the impact compounds.

For example, a $50,000 annual difference between two similarly-sized farms adds up to half a million dollars over a 10-year period that’s either not in a bank or being reinvested in the operation to stay competitive or being used to pay down debt to put the farm in a better financial position to weather these storms – to provide the liquidity and working capital to get through it, according to Peachey.

Continual monitoring of the COP and doing annual year-ahead budgets are key, Peachey points out, because “guarding cash flow is very important right now. Producers are really scrutinizing capital expenditures with an understanding of what is a need and a want. They are focusing on investments and management decisions that reduce cost of production beyond the initial payback.”

He notes that cutting costs is tricky: “If reduced feed costs means reduced milk production, for example, it ends up contributing to a tailspin when a cost-cut reduces top line revenue.”

“Some guys may sell off some assets and use proceeds to reduce debt,” says Hosterman, citing sales of mountain ground, extra timber, and selling heifers. “Heifer numbers have increased so much on dairy farms that selling extra heifers is not a bad option to generate some cash,” he says.

cropped-reprotour-73.jpgIn fact, some farms are opting to sell quite a few heifers. Even though prices are not the best, these sales contribute to cash flow, which is critical. Some farms are breeding to beef breeds and producing a dairy beef cross for the feeder market. Again, not a big price, but the cost of the breeding is less, and the calves generate cash flow as well as cost savings. Such strategies require careful thought so as not to jeopardize the position of the herd for the future.

Knowing the farm’s COP provides the information to make these types of decisions.

If the farm’s COP is not competitive, the question is, can it become competitive? Is the farm within striking distance of getting to a competitive COP? If the answer is ‘no’, there may be tough business and family decisions to make, according to Peachey.

He says it is also very important to evaluate the farm’s equity position, to sit down with the lender and look at the way the farm’s debt is structured.

“If the farm still has a strong equity base to restructure things to provide cash flow relief, it should be paired with an assessment of the farm’s COP and what can be done to improve it,” says Peachey. “How much runway do you have to work with? Knowing this is helpful for a restructure, but the airplane still has to get off the ground.”

In other words, equity for restructure provides the runway and working toward a competitive COP elevates the plane before it reaches the end of that runway.

It’s critical to go through the budgeting process, says Peachey, “to understand your cash burn rate for the coming year, to know if you have the working capital and liquidity to absorb this and if you have the broader equity base to recapitalize those losses. If I lose x-amount, can I put that on a 3-year note and pay it off and still be okay?”

Peachey equates the breakeven to a Class III price and looks at it from both the intermediate and long-term perspectives. For the short term, he sees the goal being a Class III breakeven of $15 to $15.50, so if the farm’s basis is $2 over Class III, that equates to a breakeven of $17 to $17.50 in other discussions or venues.

He cautions that, long term, the marketplace is going to demand a lower COP with Class III breakevens down to $13 and $14.

Hosterman concurs: “Some of our best farms are achieving a COP under $16.50 right now, so they can get by at a $14 Class III price, but the bottom third still needs a Class III price of $17, and the average producer needs a $15 or better Class III price to break even.”

“It is being achieved here,” says Peachey. “We can do it, but it gets back to all of the other little things that add up to how well the operation can be managed. When we know our COP, we know the weak spot in our model and can figure out how to compensate for that and find where the opportunities are.”

Hershey has received numerous calls from producers wanting to do these projections and breakevens to navigate the road ahead, and he cites Dr. Kohl’s four cornerstones of success — plan, strategize, implement and monitor. “We are pushing that, more than anything, that farmers who are struggling can ask for help.”

There is high praise for what the Center for Dairy Excellence and Penn State Extension offer to improve producer competitiveness to also improve the state’s competitiveness in dairy.

“The resources, educational opportunities and ways to connect folks are greater than ever,” says Peachey. “We have a strong infrastructure and a lot of good things in place.”

Other states have similar extension and organizational services. Seek them out.

Look for more in future editions of Farmshine as we continue this dairy crossroads conversation with producers, industry participants and leaders in the East… and beyond. The next installment will move into the policy realm with a look at the critically acclaimed film “Forgotten Farms,” produced in New England, and a panel discussion about our nation’s food policy centering on the burning question: why has dairy largely been left out of the local food movement? And what is being done about it.

 

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Seismic shifts in milk supply chain ahead: New Walmart plant triggers Dean’s cut of over 100 dairy farms in 8 states

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By Sherry Bunting, from Farmshine, March 9, 2018

LEBANON, Pa. — He saw the mailman drive up and linger in the driveway, wondering if they were expecting a package. Moments later, his wife was standing there, holding a letter she had signed for.

The certified letter informed this Lancaster County dairy farm family that after 13 years of sending their milk to the Swiss Premium plant in Lebanon – along with decades of the farm’s milk in generations before them — the agreement with Dean Dairy Direct would end May 31, 2018.

The same story played out Friday among neighboring farms on the same hauling route to the same plant. And it was the same scene in driveways for approximately 120 dairy farms in eight states, including 42 in eastern and western Pennsylvania — around half of the Dean Dairy Direct shippers to three plants in the state.

Reace Smith, director of corporate communications for the Dallas, Texas-based Dean Foods, confirmed in a phone call Monday that against the backdrop of expanding raw milk production, and companies “asserting and expanding their presence in a market where consumers are drinking less milk (namely the Fort Wayne, Indiana Walmart plant where bottling begins this month) over 100 dairy farms in eight states received 90-day termination notices” from Dean Dairy Direct on Friday and Saturday, March 2 and 3 stating that their agreements will end May 31, 2018.

Smith confirmed that the over 100 affected dairy farms are in the states of Indiana, Ohio, Pennsylvania, New York, Kentucky, Tennessee, North Carolina and South Carolina.

“This affects all size herds and is not a large or small farm thing,” said Smith. While she was unable to supply specific information about the farms that were terminated, she said the widespread volume adjustments at multiple plants across four Federal Orders was necessary due to the new Class I plant (Walmart) coming online this month and the loss of a contract through a competitive bidding process (Food Lion).

Both market losses for Dean indicating structural change to the dairy industry as more retailers move into milk bottling in more centralized distribution models.

Sources in the various states confirm the affected farms range in size from less than 100 cows to over 1000 cows.

“This was an incredibly difficult decision. We tried very hard to avoid it and regret this decision had to be made,” said Smith. She indicated that Dean Dairy Direct field representatives are serving as resources to these producers and can provide a list of contacts for potential milk buyers. They are also offering counseling.

DeanFoodsMap.jpgWhile the company will not provide a list of affected plants or a state by state break down in the number of farms or volume of milk affected, they have indicated that the state that may be hardest hit on a volume basis is Indiana.

In fact, the volume of displaced milk in Indiana, alone, has been estimated at over 20 million pounds per month, representing the under 100 to over 1000 cow size range but most of them milking 300 to 1000.

The affected Indiana farms shipped milk to the Dean plant in Louisville, Kentucky, which also terminated 22 Kentucky dairy producers, ranging from 50 cows to 250, according to Maury Cox, executive director of the Kentucky Dairy Development Council.

In Tennessee, Julie Walker of Agri-Voice near Knoxville has confirmed nine (now 10 confirmed) affected producers ranging 60 cows to 300, and numbers in the Carolinas are unknown at this time.

From the standpoint of the farms affected, Pennsylvania is hardest hit, and while the number of New York farms is unknown at this time, some may have shipped to Dean plants in Pennsylvania.

According to Jayne Sebright, executive director of the Center for Dairy Excellence, 42 Pennsylvania dairy farms shipping to three Dean plants in eastern and western Pennsylvania received notices Friday – representing half of the Dean Dairy Direct shippers in the state. This includes 26 producers in eastern Pennsylvania, including Lebanon and Lancaster Counties, as well as 16 in western Pennsylvania, where the Dean plants in Sharpsville and Erie also ended agreements with Ohio farms. The number of Ohio farms affected is unknown at this time.

“The (Agriculture) Department and the Center have been reaching out to other markets to see what capacity is available, but at this point we do not know of any with available capacity,” said Sebright. “We are working to support the affected farms as best we can. We are very concerned both about the future of the farms and the well-being of the farm families.”

Sebright noted that the Center is making additional resources available and recommending use of their Dairy Decision Consultants Program to evaluate options — both within and outside of the dairy industry. “This is a difficult situation to be in and we are concerned.”

Dean-Cows.jpgIn fact, the farm this reporter visited in Lancaster County Tuesday was already working to call every available market and neighbors who also lost their contracts were looking at everything they could think of. Four or five trucks go through the county picking up milk every day so they wonder if each one can find a market or if they are better off pulling their milk together to find a single-haul market.

The producer was thankful, at least, for being part of a dairy producer discussion group and thankful for folks like Dr. Charlie Gardner with the Center who leads the group.

Not only were the Pennsylvania dairy farms shocked to receive the letters, veterinarians, nutritionists, feed company and equipment maintenance folks are facing this loss with their farm customers as the news spread this week throughout farm communities and the greater dairy community.

In Indiana, where estimates are that over 20 million pounds of milk per month has been displaced, producers had already been on edge as the Walmart plant took shape in their state and they contemplated its milk sourcing.

“We are working with producers and contacting cooperatives and potential markets to try to work together to get through this thing,” said Doug Leman, executive director of the Indiana Dairy Producers. He has been in contact with affected producers, the Indiana Department of Agriculture, and the plants and cooperatives that provide markets for milk in the region.

“I’ve had calls not just from the affected producers, but from many other Indiana dairy producers sharing their concern and asking if there is anything they can do,” said Leman. “I’m encouraged by that, and I am encouraging our producers to keep their chins up through this difficult time in their lives, families and businesses in the hopes that we can work through this together.”

Leman said he does not want to blame Walmart because, wherever the first Walmart plant would have been located, this was coming. Indeed, Walmart has entered a trend among retailers to move toward bottling their own private label store brands (Great Value and Sam’s Club Member’s Mark) rather than contracting with Dean Foods.

“Walmart was coming to Ohio, Michigan or Indiana, and I still believe it is better to have the plant in Indiana because it offers opportunities,” said Leman.

While fluid milk consumption is on the decline for 15 years — although stabilizing with more consumption of whole milk last year — retailers notice that nearly every shopping basket going through their stores includes milk. They seek their own store brand loyalty as loyalty to their store and some of the retail price wars happening in states without loss-leader protection are evidence of this. As is the ability to pull premiums away from states that have loss-leader protection or a minimum retail price as in Pennsylvania, to “fund” price wars in other surrounding states without any loss-leader protection.

The dichotomy points to a need, perhaps, for a federal loss-leader threshold versus random state programs that can fuel the picking of winners and losers in today’s times of seismic structural change to the dairy industry from retail all the way through the supply-chain.

In short, the region would likely have been affected by Walmart’s decision to vertically integrate its Great Value and Member’s Mark milk brand for its stores in the region — no matter which state the plant had been located.

In fact, sources indicate potential sites to the south are being eyed for a second Walmart plant in the future, revealing a corridor strategy to this vertical integration of single-source, full-traceability, each-truck-one-farm model.

The Dean Dairy Direct letters of termination to dairy producers in the region were dated February 26, 2018, which was the same day as Dean’s 2017 earnings call where the company projected its strategy in brand and private label supply and to “right size” its milk volume and consolidate its supply chain to achieve a “flatter, leaner and more agile” company into 2019.

According to Smith, there are no official announcements of any plant closures at this time and none of the plants involved have released all of their shippers. Still, there remains concern that some of the plants that have released a larger portion of their farms are vulnerable.

“We still have a commitment to local milk,” said Smith about the volume adjustments. “There are many factors that impacted this decision. We are seeing surplus raw milk when the public is consuming less fluid milk, and we see companies asserting and expanding their presence in a market where consumers are drinking three gallons less annually, per capita, since 2010 while the U.S. dairy industry is producing 350 million gallons more milk annually than the year before.”

In addition to the overall imbalance Smith said that, “The introduction of new plants when there is an industrywide surplus forced us into the position of further adjusting our milk supply according to demand.”

As vertical integration of milk at the retail level leads to consolidation by the nation’s largest milk bottler – Dean Foods – the company has diversified into soft dairy product brands that are just starting out of the gate and were discussed in the Dean earnings call as well.

Specifically, the letter received by Indiana and Kentucky dairy producers shipping to the Louisville plant stated “two indisputable dynamics led to this difficult decision. First and foremost, a retailer’s new Class I fluid processing plant is coming online in the region, significantly decreasing our production as milk volume is moved away from our facility to this new plant.

“The second reason is bigger than all of us. The steady increase of raw milk production combined with the decrease of Class I fluid dairy consumption…” the letter stated.

Letters received by producers in the southern market as well as eastern Pennsylvania did not specifically reference the new Class I fluid processing plant built by a retailer (Walmart) as had the letter to Kentucky and Indiana producers serving the Louisville plant and western Pennsylvania and Ohio producers serving the Sharpsville plant.

Those letters received by farms further to the east and the south indicated the plants had “lost a portion of customer fluid milk volume to a competitor through a customer-bid process.” Sources indicate this may include both the Food Lion private label store brand and the Walmart Great Value private label in these areas as well.

The letters received by producers said further that Dean was “unable to lock-in enough new customer volume to offset this loss.” This is a function of the overall decline in fluid milk consumption and the new milk via large multi-owner, multi-site farms in surplus regions of the Mideast and Midwest.

One thing is also clear in speaking with producers, veterinarians, organizations and others in the industry, the farms that are facing this difficulty are largely well-managed and producing high quality milk. Many of them are young families representing the next generation. Many are progressive, with updated facilities and technologies as well as utilizing the resources available to them for continued improvement in all that they do to supply their communities with milk.

In these states affected, whole transportation routes were terminated, presenting both challenges and opportunities for a collective effort in dealing with these market losses.

Walmart will not reveal the farms they have secured to supply the plant, but it is widely known that some of the milk will come from the north, some from within Indiana, and that a processor in Wisconsin is handling contracts and in a position to balance the Walmart plant’s fluid needs that may or may not have involvement by cooperatives.

As in Indiana and other states, Cox said of Kentucky: “We, are contacting other potential markets for our producers and would like to meet with Dean Foods to see what more we can do for these producers and to have a better understanding about the future of the Louisville plant” (where both the affected Kentucky and Indiana producers shipped their milk.)

Some state dairy organizations, state departments of agriculture and other industry leaders indicate they want to let the dust settle and allow options to emerge as they adopt a patient mindset to look at potential options for their respective state’s producers.

In the meantime, all are reaching out to producers and urging producers to reach out to them, and to each other. In fact, right now, more than ever, the dairy community needs to be reaching out and talking about its future to higher levels of relationships beyond what has occurred in the past.

“We want to survive,” said the dairyman this reporter visited 15 minutes from my home in Lancaster County, Pennsylvania, just four days after receiving the letter.

Like others this reporter has spoken to, they have done everything the industry suggests to make their farm competitive. While a small farm whose milk shipped for generations to the Lebanon Swiss plant serving local stores and consumers, this young farm family had invested in the latest technology, produces milk with very high components and very low somatic cell counts.

But here they are, facing what 120 of all sizes face throughout eight states as vertical integration from Walmart and other retailers sends a ripple effect and seismic shifts throughout the supply chain.

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‘Faith and dairy passion’ fuel her humble work from Pennsylvania to Bolivia

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Secretary of Agriculture Russell Redding congratulates Karen Hawbaker, 2018 Distinguished Dairywoman. 

Karen’s humble courage and work at her own Warm Springs Dairy as well as the dairy at Andrea’s Homes of Hope and Joy in Bolivia through of Love In Action Ministries is an inspiration.

This is a small world. I met Karen six months after meeting my daughter-in-law Vanessa’s father who put me in touch with his brother David Rice in Nebraska for a stop to visit Prairieland Dairy on my working travels west. David told me about having volunteered in the project to build a dairy at the orphanage in Bolivia. He put me in touch with LIAM, and six months later, back in Pennsylvania where it all started, I met Karen and other project members to do this Nov. 27, 2015 Cover story in Farmshine, which was later reprinted in additional publications.

By Sherry Bunting for Farmshine

STATE COLLEGE, Pa. — A humble and honored Karen Hawbaker showed her faith and gratefulness as she was presented the 2018 Pennsylvania Distinguished Dairy Woman Award by the Pa. Dairymen’s Association, Center for Dairy Excellence and Professional Dairy Managers of Pennsylvania during the Pennsylvania Dairy Summit here at the Penn Stater Conference Center Feb. 21.

“Without God’s strength, provision and blessing, I wouldn’t be who I am or where I am today,” said Hawbaker, thanking also her crew at Warm Springs Dairy, where she owns and operates the 180 cow dairy she and her late husband Rodney started in 1988 in Franklin County.

The award recognizes a dairy woman who has distinguished herself in her leadership and service to the dairy industry, both on the farm or to the broader industry and community.

Warm Springs Dairy has been recognized for numerous production awards, consistently being in the top DHIA herds for production and milk quality.

Since Rodney’s passing in 2011 from a farming accident, Karen has continued to operate the business with her dedicated employees and a focus on the cows, with custom operators doing most of the field work.

Through Love in Action Ministries (LIAM), Karen has been able to share her dairy passion and her faith and has been instrumental in carrying on her husband’s legacy in helping LIAM establish a dairy farm at Andrea’s Home of Hope and Joy, an orphanage in Bolivia. 

“God instilled in me a passion and love for the work in this dairy industry both here and in Bolivia and wherever He may lead me,” said Karen when asked why she chooses this 3 a.m. work schedule with cows and all that goes with it. “God has been good, and He has brought good people into my life at the farm.”

The LIAM dairy project was started by Rodney as a plan to build a dairy in support of the orphanage. After planning the farm, Rod and Karen led fundraisers to build the dairy and then traveled to Bolivia in 2009 for the start of the barn, traveling there three other times before Rod passed away in 2011.

The project was delayed at that point, but cows arrived in the fall of 2014 and are doing well, with the farm providing milk and vocation for the children who live there.

Karen has served on the LIAM board and its dairy committee and loves the opportunities to volunteer her time to work with the farm in Bolivia. In addition to her involvement with LIAM, Karen is a member of Antrim Brethren in Christ Church where she teaches fourth grade Sunday school, leads a grief support group and helps with audio visual ministry every other month.

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Dairy at a Crossroads Part I: 2018 Turning point?

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Number of farms, robust infrastructure are interdependent. The ripple spreads wide and the pain in rural communities, deep.

 By Sherry Bunting, reprinted from Farmshine, February 23, 2018

BROWNSTOWN, Pa. — Dr. David Kohl recently said he is still bullish on the small farms that populate the eastern dairy industry, that there will always be a place for them, but they will change their focus.

Still, lenders and industry participants confide they are concerned about a large number of dairy exits in 2018. They are encouraging producers to work with advisors, and urging the industry to work together in the embattled eastern U.S., because the whole infrastructure depends on the number of farms as much as — if not more than — the number of cows and amount of milk produced.

While lenders like Dale Hershey, director of ag lending for Univest Bank and Trust, say they have already seen many diversify and change how they operate, others are in the process of re-thinking their futures.

The biggest concern for Hershey is when farms decide to sell the cows, seldom do the cows come back to the farm.

“Some of those farms will stay empty. That, I do see,” he asserts. “Occasionally they’ll come back in and milk, but mostly they will go into something else, or if the farm is sold, we’ll see most of them stay dark in terms of dairy production.

“I think we’ll look back 10 years from now and see 2018 as a turning point.”

Mike Peachey of Acuity Advisors and CPAs agrees. He sees dairy at a crossroads similar to the hog industry in the 1990s: “My concern is that we will see a dairy industry 10 years from now that looks very different from how it looks today, and we are helping our dairy customers take stock of that.”

Peachey observes that as the number of farms decreases, “This puts a lot of pressure on the dairy infrastructure and the ag businesses that support the dairy farms. One of Pennsylvania’s competitive advantages is that there is a lot of infrastructure and support in the whole supply chain that is very beneficial for competitive pricing for our dairy farmers.”

He cites the region’s multiple feed companies, multiple points of expertise, nutritional perspectives and a bidding process, multiple veterinarians, the strong ag lending infrastructure, equipment dealers, and expertise in different specialties.

“My concern is that if the number of dairy farms decreases, and if the infrastructure goes away, then it changes that competitive advantage,” he says, observing that the number of cows or the amount of milk produced does not necessarily make up for what is lost when the quantity of individual farms is reduced by consolidation.

Yes, the dairy industry is at a crossroads, and no where is this perhaps more evident than in eastern states, like Pennsylvania.

The Northeast was a fluid milk market in the past, close to 50% of utilization. Today it is less than 30%. As more milk is produced — even if per capita fluid milk consumption stayed the same — not enough other products are made here, so mailbox prices are falling under the coinciding weight of increased hauling costs and losses in competitive and quality premiums.

Meanwhile, the Class IV utilization has increased as a percentage in the blend price, leading many to believe the Northeast model of dairy pricing may be broken.

In fact, so concerned are states and dairy organizations that state-wide analyses are being conducted in top tier “notably fluid” states like Pennsylvania and New York in the Northeast as well as in Georgia, in the Southeast. The states of Michigan and Wisconsin are also looking at their state’s production, processing and infrastructure to improve their future competitiveness.

In Wisconsin, milk prices are driven off the cheese market — a growing market that has been cultivated to generate variety, demand and competitive premiums — whereas the Northeast model is built off Class I, which is not competitive, nor is it growing. And, unlike cheese with its diverse growth in specialties and brands, the Class I milk at the store is treated like a base commodity against which all newcomers and imitations are compared and premium-priced.

Dairy producers and industry participants also say they are concerned about the Pennsylvania Milk Marketing Board’s role in terms of the costs associated with milk assembly vs. where the state premiums are going.

Meanwhile, store inventories are kept close to the bone. If they throw a gallon of milk away, the margin on every other gallon is affected, and so stocking depth is being reduced.

These are the kinds of issues that states like Pennsylvania, Georgia, New York and Michigan, among others, are actively looking at as they study capacity and market needs and trends.

Producers don’t control these decisions, but their input is vital.

From farm to table, technology and workforce are two other big pieces with immigration reform being a double-edged sword.

If the Congress and the Trump administration are able to legalize immigrant worker status, what will that really do for the dairy workforce? A National Milk Producers Federation study with Texas A&M reveals that 80% of the nation’s milk was harvested by immigrant workers — up from 60% in 2009.

With general unemployment now falling below 5%, which many economists consider to be full employment, a legalized immigrant workforce may be lost to jobs in industries with better margins.

Workforce issues are also affecting trucking and other infrastructure employment.

Labor is fast replacing environmental as the number one issue facing the dairy industry, and against that background, farms will do things differently over the next 10 years to systemize their production, say various experts.

Builders, lenders and others are seeing the emphasis for this in three areas: wet calves, dry cows and post fresh, as well as through investments in technologies that improve management, specifically by their impacts on cost of production because this is the criteria that will drive farm-level investments into the future.

Technologies may help solve it, but this requires investment. The right answer, policy-wise, is elusive, but for individual farms, the right answer comes, again, from knowing cost of production from which to weigh out the options and run projections and scenarios based on where the farm is now and where it wants to be in the future.

While some see opportunities to drive milk output per cow higher with more cow comfort and better heifer programs, pointing out that Pennsylvania lags behind other states in its milk output per cow, others in the industry point to imposed restraints pushing the focus toward managing risk.

Complicating the marginal milk model for improvement in Pennsylvania is the Land O’Lakes base program. When producers are over base — because they’ve improved their management — they take a penalty when the base is enforced, depending on the eastern region’s total production.

Learning to manage through this intermittent penalty seems to be affecting mainly the producers in the East, despite more substantial growth in the West. In addition, DFA has started a base program for portions of its membership in parts of the Southeast U.S., where milk is already regionally deficit.

How will this push-pull play out at the farm level?

Some producers will carry a lunch. Hershey is seeing a trend toward small farm operators finding seasonal off-farm employment to keep their dairy farms running.

Others have and will become diversified, which can reveal two pathways: Getting successful in another area and exiting the dairy, or seeing the dairy as a lifestyle to keep, and using other income streams to weather the storm.

In addition to diversifying, lenders note niche processing will be a path for some. There are a number of niche producers in this part of the country. Some have been doing this a long time, others are just getting in.

“The good economy has really helped those operations. Tourists are traveling, coming to our county, dining out, and packing the places we deal with,” Hershey observes about Lancaster County, Pennsylvania. Some of our cheesemaking stores are flourishing right now, but that business is not for the faint of heart. It requires deep pockets to get into.”

Connecting dots for consumers is essential for eastern states, like Pennsylvania. For example, in Lancaster County, Pennsylvania, there is this dichotomy. The county — like other parts of the eastern U.S. — has grown in produce and other specialty crops to become a great hub of food. To some degree this includes dairy, but more stimulation is needed.

As will be further discussed in part two of this dairy-at-a-crossroads series, knowing the cost of production for the farm business and knowing where lie the passions, strengths and weaknesses of the farm family are keys to finding each farm’s own path — whether that means keeping the cows and diversifying, investing in niche marketing, getting more competitive on cost of production or giving the cows up and channeling that valuable positive experience and energy to new pursuits.

This industry is about the milk and the cows, but even moreso, it is about the people.

“We can do it here,” says Peachey. “When we know our farm’s cost of production, we know the weak spot in our model and can figure out how to compensate for that and find where our opportunities are.”

As these changing tides and issues sort themselves out, Peachey observes how dairymen are making these “tremendous strides to improve their operations,” and he believes the next wave of improvement is figuring out how to do risk management well, how to capture margins when they are available, and how to protect operations from downside risk.

“We can take an operation so far and continue to improve, but the next wave of significant profitability and improvement is in managing the top line price and the input costs and locking in those good margins when they are there,” says Peachey.

“A generation ago, with price supports, dairy farmers could work hard and do okay or very well. Now it is a business requiring an approach to management for the long run,” he adds.

In part two of this series, we’ll examine the map for navigating the dairy crossroads.

 

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