By Charlie Elrod
President, Natural Biologics, Inc. & Director, NEAFA
The 2022 NEAFA Annual Meeting, based around the theme of Strength in Numbers and presenting “A Unified Voice,” was packed with outstanding information, insight, and context to help participants understand a broader swath of the industry we all work in. One of the many highlights of the annual meeting was the panel discussion, moderated by Professor Mike van Amburgh and drawing on the expertise and experience of dairy producers, nutritionists, and business consultants. The producers’ experiences and adaptations depended greatly on where they marketed their milk.
Mark Mapstone, a Farm Credit East business consultant, provided great context by describing three of the most common base excess programs. While Mark provided more detail on the programs in his presentation, he also summarized them as: the Agri-Mark system (BIG Bite); the DFA system (moderate bite); and the Upstate or Land O’Lakes system (little or no bite). Depending on their milk market, producers could respond very differently in each of these cases. In almost no situation would producers want to produce milk in excess of their base production level in the Agri-Mark system. The penalties are just too high and there is no gross margin to be generated from those milk sales.
Under the Upstate/LOL program, there is little disincentive to producing however much milk a producer wants to make. It was really under the DFA system that required more ingenuity in making more milk and maintaining some level of farm profitability. The producers on the panel made a number of excellent points. Trying to reduce milk production nutritionally across the whole herd would rarely lead to a successful outcome. This could really pull the rug out from under fresh and high cows, and perhaps compromise their production far into the future. Thoughtful culling and dry-off decisions to reduce overall production was often used as a tactic to stay closer to the base level and avoid penalties. One dairy marketed milk from their two farms to co-ops under different systems, and even moved cows from one farm to another to shift production into a lower penalty structure.
One sentiment expressed by some of the producers was whether these programs would lead to enough pressure on farms to really stifle growth and discourage the entry of the next generation of young farmers into the industry. Sadly, this introduced a tone of pessimism that I haven’t heard in our industry in over 30 years. Having owned a dairy in the Southeastern U.S. in the early 80’s, operating under a seasonal base program, I understand all too well what a damper such a system puts on the vibrancy and progressive attitudes of everyone in the industry.
Mark Mapstone summarized it well when he suggested that under the moderate DFA system, if a producer could more than cover his variable costs in the operation (gross milk price minus over base penalty being enough to cover variable costs and leave a positive gross margin) it contributed positively to the farm’s profitability. In that situation, producing over base could be a winning proposition for many farms. In years like 2022 where the milk price is very high, making a higher % over base could result in a higher bottom line for farms.