Question for Bruce on milk marketing???

Bruce I was wondering about how you market you milk in Canada. Here most farmers sells the milk to a Coop of some sort. Then they are paid a base plus a component premium. Some Coops pay additional for low cell counts and such too. The long and short of it there is not much government direct involvement in the marketing. There is a support program but prices really have to be in the dumper for them to actually kick in and even then it is not much.

I know that small grains are marketed through a national grain board in Canada. I was wondering if the dairy products do some thing similar???

Yes tie stall barn additions are rare in this area. It is 85% parlors and free stall barns here these days. Few under 100 head dairies left. 200-300 are more common with a few mega dairies(500-1000 cows) in this country.

There are getting to be a good many robot milking setups here with the smaller dairy guys adopting it faster than the large dairies. I know of 4-5 farms with them with in 10 miles of me. You talking about $500K for two robots that can milk 100-120 cows total. I just do not see how the numbers work but the fellows that have them are pretty good farmers.

Hi Jd . First let me tell you the Canadian Wheat Board , was disolved and sold by the last government. It was a single desk seller for all Canadian Wheat, meaning you could only sell to the CWB and the CWB sold the Wheat over the coarse of the year. Most farmers were happy with this system because you didn't have to "market " your self, . This was not for Oats , Barley , soy , or corn. The Wheat board effected the Western grain farmers the most, I am in Ontario , and the end of the CWB had little impact here.
Milk is still marketed through a "Supply Management" system national system. The federal government gave each province the legal right to set up a Milk Marketing Board , in their respective province , in 1965.Each province set up there own rules under national guide lines , and have been working to harmonize these rules for the last fifty years, but that is another story.
Quotas were granted to existing producers based on what they had been shipping. I should add now that there were two markets a farmer could ship into then , Fluid milk (class A ) or industrial (class B) . The fluid price or "table milk " always paid better than the industrial"cheese plant " milk , with different "Quality " standards. We only have one milk Quality now , All milk is "Grade A" and one inspection system.
So now we are paid according to what the end use the milk goes to , Fluid milk being the highest price , and skim milk powder being about the bottom . The farmer is paid out a blend of these prices, based on the farmers milk components, butter fat , protein , other solids (lactose ,etc.) We milk Jersey cows and last month our pay out was $0.92 Cdn per litre , my Holstein friends received $0.75 per liter.
We receive no direct government subsidy , though our market is protected with border tariffs, and our milk is sold into the domestic market only . Therefore our income comes only from the sale of milk within Canadian market.
The United States and Canada have many free trade deals , and just about as many border controls, or tariffs to defend their domestic producers, it is indeed dizzying.
So for a farmer to ship milk in Canada he must hold Quota for the volume they wish to produce , within the province which they reside. In Ontario quota cost $24,000 per kilogram of butter fat. Notice quota is based on butter fat weight not liquid volume .At my farm I need 20 liters of milk to fill one kg of bf quota. with 5.03 % bf milk. If I milked Holstein cows and had 3.75 % bf milk , I would need to ship 25 liters of milk to fill one kg of bf quota.
Each cow will need , on average , one kg of quota . So if you are going to milk 50 cows every day , and your cow get a 60 days dry time , a farmer will need some where around 60 cows , some of these could be replacement heifers, to fill his quota of 50 kg.
My adding Tie stalls to my barn is just a way for me to max out my existing facilities with out spending major dollars. I will need to buy more Quota, several hundred thousand dollars worth, much more than the barn will cost. There are still more tie barns here than free stall parlor set ups, but most new construction is Robot barns.
I can see that as the future unfolds , and we grow our herd and quota in this barn , building a new barn with a Robot will be a natural progression for my son . But that will be at least ten years out, he has to wear the old man out first ! I can think of 20 or more farmers I know that have gone to Robots, the largest milking 250 cows ,not 10 miles from me.
Confused yet ?? Dairy is very complicated , more by government regulation and global trade than just day to day work on the farm.
Be glad to answer any more questions that you might have , to the best of my ability. Bruce

(quoted from post at 02:54:47 12/02/15) Bruce I was wondering about how you market you milk in Canada. Here most farmers sells the milk to a Coop of some sort. Then they are paid a base plus a component premium. Some Coops pay additional for low cell counts and such too.[b:fb3046519b] The long and short of it there is not much government direct involvement in the marketing.[/b:fb3046519b] There is a support program but prices really have to be in the dumper for them to actually kick in and even then it is not much.

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As I understand it, the gov't still sets prices on milk based on a 1920's formula involving milk cans shipped by rail. I forget the details, but it centered in the midwest (highest prices) and radiated out from there (lower prices). If this has changed, I haven't heard about it.

If you are talking about the US, then no, it isn't true. Various classes of milk, like class 1 (fluid) or class 3 (cheese) are determined by market prices of various ingredients like cheddar cheese, whey, dry
milk powder, etc that traded on CME.

The formula is set by the government, but the price comes from the market. As of the 2014 farm bill, there is no price floor for dairy any more, either.

As for the old system you are describing- it did function that way in years past, however, the price was lowest in the midwest, and highest further out. This is how dairy stayed competitive in places like
the SE or florida... places that are not all that cow friendly in the heat of summer.

There is very little between the 100 cow dairies and 1000 cow dairies with 1500-2000 head becoming more common locally. Most of the 100 cow and under dairies are Mennonite owned and have a different financial structure as the "home" farms are financed at 1 percent APR for 50 years. I can remember during college in the early 1980's the ag building at Alfred had dozens of guys with dreams of going home to have their own small dairy. I don't think there is more than maybe a couple engaged in the dairy business at this time. Not a lot of dairy left in my immediate surroundings as cash crop is predominant despite less than fantastic yielding soils.

Well explained Bruce...Its a lot more complicated since I milked 30 years ago.
Now you have to post your milk "check" and explain all the formulas on that!

Really Teck 7 ? Some things are best left to the imagination , Have a nice day !

Bruce, Your pay formula sounds just as complicated as the US. How do you go about buying more quota? I thought it was kinda hard to get more, for example: farmer A wants more quota and has to buy from farmer B who is retireing or selling out. John

That was my understanding as well. I know guys will get up in arms here about the Canadian quota system but it probably has given small dairies a better chance to survive. A small dairy can not make it in the US unless it has ultra-good genetics in the herd, no debt, a wife that makes nearly six figures off farm, inheritance, trust fund or other. I can remember even though the 1970's were not especially good due to inflation it was possible to carry some debt as nearly everybody in the neighborhood was working with Farm Credit or an ag bank for their 50 cow herds.

You are correct John , quota is hard or should I sway slow to squire . You can buy quota one of two ways . 1 buy out an ongoing operation, land , cows quota every thing. 2 purchase quota over the Quota Exchange. To buy quota on the exchange you must have a milk producer licences number, and you can only bid for 10% of what you currently hold . Eg if I had 100 kg of quota , the. I could bid to buy as much as 10% more on any given exchange. The exchange is run each month , by the marketing board. The price of quota is capped at $24,000.00 per kg, and demand usually out strips supplie . So while you may bid for 10 kg, you might only get 1 kg of quota. And because supplie is limited , it always sells at the maximum capped price of $24,00.00 . You can sell quota the same way, but you can sell all or part of your holding on each exchange . Expansion for me is slow , and I buy quota almost every month because sometimes very little quota is offered for sale , so I like every other farmer , have very little to buy. Last year I might have increased my farms quota holdings by 5 kg. Not a big increase in production , but a fair hefty price tag just the same. Growth for me is constant at this time, with my eldest son home on the farm with me. Probably have really muddy the water here now for most folks reading this. But let me say this, while I have a large over head investment in land and quota, we do get to make a desent return on investment. Your profit margin wi be dictated by how well you manage your cows/farm. Supply management is NO garrenttee of success . Farmers can still screw up and go broke! I know probably more than 100 dairy farmers , don't know any that have imagrant workers milking thier cows, most are all in-family workers. Some have hired help, but just locals . Very different from what I understand of the U.S. . Bruce

I think he was meaning the way the premiums are actual done not your actual check. At least I hope that is what he meant. LOL

Thanks to Bruce for answering a complicated question it would seem. I am glad to not be in a quota system. We may have a more roller coaster price but we also do not have to buy quota either.

Can the quota be leased??? I know the old tobacco production quotas could be leased for a year at a time.

In my small area of PA 30 years ago there were at least 25-30 small dairies within a 10 mile radius (no mennonites). The biggest ones were right around 80-100 cows. Now that number is less than half. The guys that are left are either into elite genetics, running on fumes, are bottling their own, or have gone to a grazing based approach. The 2 guys I am friends with dairied for decades conventionally (confinement barns, hauling feed in and manure out), lame cows, big vet bills, poor conception rates, etc. and about 10 years ago went to intensive grazing. High-end, fragile Holstein genetics out, very hearty jersey-cross muts in. They're making far less milk, but more profit. No silos to fill, very little manure to haul, less machinery to eat up your margins, just single wire electric fences and a bunch of water troughs. The guys were ridiculed by everyone (including those who have since sold their cows), but they tell me they would NEVER go back to the way they did it before. Their herds are seasonal (dry off around Christmas), right around 100 cows (more head than their previous conventional herds), winter outside (yes, no barn), calve over a 2 month period in the spring when the grass comes on, and calves are left on momma for colostrum and housed in group pens.

Both of these guys will admit that this system is less physical work, but far more management intensive than one would think. A lot of science in when to move cows, what grasses to grow, when to feed hay, etc. Sorry bit off topic of the original post, but your mention of small dairies reminded me of this.

Well JD it is almost a test, if you can navigate the quota system , then you may be sharp enough to manage a dairy farm ,ha ha. But isn't that about true with most of our farm products now ? Endless rules , high over head , and slim margin. And every government supporting a cheap food policy to get votes. And farmers still manage to produce more for less now than ever.

NY 986, I would say you have a good handle on how things work. All supply management does is give the farmer some control over milk price , instead of the dairy processor/ retailer making all of the profit , and calling all the shots. I did notice when my wife and I were in the U.S. last summer , that the price of most food and dairy products were not that much different then at home , when you allowed for the exchange rate. Some price tags were the same, some higher. I think life for the most people in Can. or U.S. can be a struggle if you have a family to feed. And food , at are end, the farm , is cheap ! Some one along the way is making big dollars.

Yes, quota can be leased... at least in some provinces. There are also percentage restrictions on that... I think 25% of your holdings was the maximum you could lease.
I think the roller coaster prices are the biggest drawback to milking in the US... but I think at the end of the day the net result is about the same on either side of the border right now.
I do believe there will be a large reckoning to come some day should the Canadian government finally give in on defending supply management against globalism... It's not that the metrics of this industry are really much different here aside from the HUGE dollars that are tied up in overhead (quota). If that was to be devalued overnight, catastrophe would result...

Rod

"Canadian quota system but it probably has given small dairies a better chance to survive"


In the short term YES
In the long term NO

We have seen it in the cane sugar industry.
First you start with a import tariff that artificially raises the price so that locals can compete.
Now everyone wants in so you put in a quota system.
So now farm A B C and D have quotas.
Now farm A decides to sell out because his kids do not want to take over.
His choice is to sell his quota to farm B C D or a outsider.
The outsider has a hard time getting started because now he has to come up with 1 to 2 million extra dollars to get in.
It is much easier for farm B C or D to buy him out because it is a expansion rather than a start from new operation.

So you have B buying A today and C buying D next week and B buying C in 20 years.
Now C owns all 4 farms because a outsider had the added expense of the quota to contend with.
So the only way to get started was to inherit your original farm.

That old USA pricing system you mentioned about killed milk production here in the Midwest. Terrible deal.

California dairies, the 4000+ dairies - they grew by leaps and bounds in that period.

Another deal where the government killed flyover land while using our tax dollars to build up California, Florida, and New York.

Paul

A lot of the small dairy farmers in the county north of me are going to grazing also, it is a hilly county!

Every time there is a mild fall followed by an early spring we have extension people talk up grazing around here. The reality is the other 8 or 9 years out of 10 the grasses go dormant by the first of November but production falls off before then. Then instead of being 58 and sunny March 1 it is 25 degrees F with 18 inches of snow. The bottom line is we are too far north to have it work. I agree on the Holstein genetics somewhat. Instead of having 3 year olds at 975 pounds and pushing 100 precent silage it might be better to go the route my one grandfather went and had 3 year old Holsteins over 1100 pounds that convert hay fairly well on ground that was not much good for corn silage though he put up a little. He had cows back in the 1960's that made over 20,000 lbs milk with minimal supplements. Today it is almost a wash because of the cost of supplements to push from the low 20's to almost 30K or more. I hear what you are saying about reduced operating cost but some of these guys are reduced to the point of being hired men without being expressly labeled that. I hear of operations where everything is leased including the land and buildings. If you come in at the right point of the cycle you have several good income years to build equity. If not you have to leverage what little equity you have to get the bank to hopefully carry you to the better income times where you have to pay that money back among other things. Maybe I need to see a successful grazing operation up close to really get excited about it.

Three year old Holsteins that weigh 975 lbs...or 1100 lbs? What were they, starving? No reason a Holstein can"t freshen by 24 months and weigh 1200.

Maybe he wanted Jersey and not Holstein. or Jersey x Holstein , still don't want any 3 year old fresh heifers.

JD Seller is correct....I didnt mean for you to disclose your business, just for you to relate what fees etc are involved. Neighbour was talking about his sons class interpreting the marketing boards statement.Almost need a masters in business to understand it I think
BTW Ive always had a soft spot for Jerseys only because my Dad liked them....he used to milk the Jersey herd (also had seperate Holstien herd) for a guy who ran a mens wear shop in TO. Jack Fraser was more than clothes at one time

Obviously, they can weigh over 1200 pounds but it is all on the genetics of the family line. I know they can first calf at 24 months but it seems cows grow just a little between 24 months and 36 months. I never meant to imply all my grandfather's were barely at 1100 pounds. No doubt some were considerably above that. A 975 pound Holstein does not have to be starving as the cow only needs to be a couple inches or so not as long as the 1100 pound animal and a little smaller barrel. I've seen smallish cows kept in the string if the production is respectable but not fantastic and the family is good at putting out heifers. Obviously, if a farmer is using embryo transplants then that trait is far less important. I can remember one guy's best cow threw nearly 2/3's bulls over its adult life. Lastly, I would point out I am trying to recall information from 50 years ago considering mom's father so it is possible my memory may be off a little plus I was a kid then.

Like I told JMS I never meant to imply that the first calf did not happen until 36 months but am trying to say that is when they hit a "mature" body weight.

Sounds like it is a good thing it is capped or who nows what it would cost. I hope you can somehow transfer or pass on your quota to your son. He better thank dear ol dad for what you have aquired! HAHA Seems like you have to be a businessman as much as a dairyman anymore to make a living at this.

Only quota leasing that I have ever heard of is in the east coast , and I think only in Nova Scotia. Seems I had read where the farmers there could lease out their non sale able quota , and only lease it for one month intervals.The non sale able quota has been turned into sale able Quota here in Ontario , and will be the same were you live too Rod. This is a very small part of the Canadian milk quota story, there are only about as many dairy farms in the whole east coast as there are in our region. As I said very little quota is leased. Most dairy in Canada is in Quebec and Ontario, with Ontario being the biggest market. Inter provincal trade has is always a stumbling block, and each province hangs on bitterly to control their own little Empire. I understand that the Nova Scotia marketing board is so small now , the Ontario board does your milk cheques and accuonting. Helps defer our cost too .

While we are at it I also never intended to imply my grandfather had Holstein cows as small as 975 lbs. I was repeating a comment I had heard within the last year that some breeding programs were supposed to be aiming at lesser body weight with a shorter stature to reduce injury incidence on concrete along with less energy needed to maintain a higher body weight. I don't milk cows and have not been around them for a while so I don't get any industry magazines to know if this comment is on the money.

You know, Bruce, I've milked for 30 years, been on the County Milk Committee, gone to umpteen meetings, listened to much rhetoric from DFO officials, politicians, etc., and your explanation of the system is by FAR the simplest, most understandable and most comprehensive of ANY that I've heard. You would do well on your local milk committee by putting policies into words that everyone can understand. The DFO needs more guys like you!!

Ben

(quoted from post at 10:14:55 12/02/15) If you are talking about the US, then no, it isn't true. Various classes of milk, like class 1 (fluid) or class 3 (cheese) are determined by market prices of various ingredients like cheddar cheese, whey, dry
milk powder, etc that traded on CME.

The formula is set by the government, but the price comes from the market. As of the 2014 farm bill, there is no price floor for dairy any more, either.

As for the old system you are describing- it did function that way in years past, however, the price was lowest in the midwest, and highest further out. This is how dairy stayed competitive in places like
the SE or florida... places that are not all that cow friendly in the heat of summer.

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I stand corrected. Thanks.

Yes, I think you're correct in saying that NS was the only province to allow leasing... I don't know why because it makes a lot more sense to lease and move quota around to match production that it does to be buying and selling all the time in a pool so small that when you sell it... you will never, ever get it back. Leases are private here and month to month.
I'm not milking anymore so I don't keep up on all the details but I do know that the thieves did finally release the non-saleable quota recently... somebody of the SOMEBODY's probably had such a poor equity position that a lender was about to pull the plug... so reissue the ownership to shore up their balance sheet. If they were smart they'd remove the cap and let nature take it's course.... The fat heads would soon gorge themselves and burst... then you might see some cheap quota for the rest.

I think there was around 220 active in NS 4 years ago when we got out. Probably down around 200 by now if the same regression has continued...

Rod

(quoted from post at 12:47:06 12/02/15) "Canadian quota system but it probably has given small dairies a better chance to survive"


In the short term YES
In the long term NO

We have seen it in the cane sugar industry.
First you start with a import tariff that artificially raises the price so that locals can compete.
Now everyone wants in so you put in a quota system.
So now farm A B C and D have quotas.
Now farm A decides to sell out because his kids do not want to take over.
His choice is to sell his quota to farm B C D or a outsider.
The outsider has a hard time getting started because now he has to come up with 1 to 2 million extra dollars to get in.
It is much easier for farm B C or D to buy him out because it is a expansion rather than a start from new operation.

So you have B buying A today and C buying D next week and B buying C in 20 years.
Now C owns all 4 farms because a outsider had the added expense of the quota to contend with.
So the only way to get started was to inherit your original farm.

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I understand the cost of quota is a factor, but ag in general has been consolidating for decades. Very few farmers left, it has been marry it or inherit it for a long time. If not for the protection, there would be no sugar production either.

Bruce, very good explanation of the Canadian dairy supply management system. My knowledge is dated as my brother quick milking in 2005 and sold his quota. On the other hand my cousins in eastern Ontario just build a new dairy barn with automatic everything including one milking robot. Is there still a limit of 500 milking cows in the Canadian system?

This past October we were touring in southern Idaho and there was an antique machinery museum by the interchange of I84 and US93 near Twin Falls Idaho. We stopped in and there were a couple retired farmers there preparing everything for winter. One fellow was telling me that there were now more milking cows in the local county than people as there were two large dairy farms that were milking 5000 plus cows each and all the small dairy farms were gone. We did not see these farms as they were north of US93 and we were going east to Idaho Falls. I just can't imagine how many tons of feed 5000 cows would consume in a day and how many gallons of liquid manure would be produced.

JimB

Hi Ben, Thanks for the kind remarks. I have been , and still am on Milk committee in my county. And I was chair for five years, even took a run for milk board one time, but came up 18 votes short. I do enjoy asking the hard questions that everyone wants to ask, but are either too shy or just cannot stand up in public and speak their thoughts.I ,like you have seen a lot of changes in the last 35 years, and more changes will come. Farmers need to be mindful of changes not fearful , and always be looking into the future, while having a good understanding of their past. There will always be detractors to our marketing system, but most detractors are only looking to end supply management to better their own interest. Bruce

Teck 7 I didn't really think you where asking to see my check, but I did enjoy pulling your chain a bit. Really don't think the statement is so tough to understand , but it does contain a lot of information.I have had farmers come to me with their statement and ask me to explain it to them, and once you go over it, it is no big deal. I could go on about over production credits and under production credits ,protein/butter fat ratios and such. But your eyes will glaze over and you will fall a sleep reading this stuff. It really is only of any importance to the fella who receives it. Not trying to hide any thing, it will just be dull reading. Bruce

"Whether you believe you can or you believe you can't, either way you're right" - Henry Ford

Yes. I had to see it with my own eyes, feel it, smell it, etc. I actually asked if I could volunteer as a relief milker on my friends grazing operation to see it first hand. I saw the good, the bad, and the ugly for myself and it still made me a believer. It is a COMPLETELY DIFFERENT management mentality, which makes it tough for some people to wrap their heads around it, (myself included, that is until I experienced it first hand).

As far as being too far north, there are LOTS of grazing based operations in NH, VT, ME. The further north you go, the more stored forage (baleage and such) you need to have on hand. It is more about SIMPLIFYING than anything. Use easier keeping genetics, simpler facilities, less machinery intensive harvesting, etc, than anything else.