Dino Giacomazzi

By Dino Giacomazzi, Giacomazzi Dairy, Hanford, CA

“Producers Voice” written for and printed in Agribusiness Dairyman Magazine, July 2010

Not exactly what Mark Twain had in mind when penning the famous quote but it pretty much sums up the dairy industry today.

The dairy industry is a unique critter. We are a group of fiercely independent, conservative capitalists doing everything we can to wrangle ourselves into socialist systems. Milk marketing orders and cooperatives are examples of such systems that developed out of need.

We aren’t very consistent in our politics. We generally display a, “get the government out of my back pocket, but they damn well better make a deposit in my front pocket” attitude. I am actually ok with these forms of schizophrenia. The problem I have is the hypocrisy of the fighting within the industry.

It appears to me that the dairy industry is at war. We are at war with radical environmentalists who want to regulate cow farts and let sardines rule the earth. At war with vegan terrorists who torture animals on video to portray us as Hitler with a milk mustache. At war with Marxist journalists who portray modern agriculture as the source of all societal ills, creating a dilemma for us omnivores. At war with unions, regulators, politicians, inspectors, monopolistic processors, oligarchic retailers, weather reporters, food burning cars, market manipulators, protein concentrators, hippies, lions, tigers, bears, and Al Gore! Oh my!

Why the heck are we constantly at war with each other? Why is it every time we show up to a battle with an outside group we come fighting with each other? We do this with processors over make allowances and environmentalists over air regulations. They show up organized, with a plan, and a message. We show up prepared to lose. I don’t blame policymakers for making the easy choice.

With all this adversity it seems like this would be a good time to come together. Let’s cease to be Western, Midwestern or Northeastern dairymen, lets not align ourselves as dairymen from ABC or XYZ co-op, let’s erase the lines between the dairymen of the red trade group and the blue one. Let’s just be Dairymen!
Ok, great, we are all just dairymen, now what? How about we talk about Milk Market Management.

In 2009 we didn’t have a supply problem we had a demand problem. Yes the price discovery system is flawed and the markets are manipulated, but that doesn’t change the fact that the economies of the world collapsed. They are still collapsing. It wasn’t just us. Like the post-911 years 2002-2003, the world melted down and we melted with it.

We need a unified dairy industry taking a holistic approach to reform doing it from a position of thoughtful reflection as opposed to panicked reaction. And we need to do it now.

The first step is to stop talking about supply management and start talking about milk market management, a comprehensive plan to reform all sectors of the industry. Reform must take place on the supply side and the demand side. Supply management is just one spoke in the wheel that will drive our industry into a brighter future.

The demand side must include a coordinated effort by every dairy marketing organization across the country to produce two simultaneous campaigns. One positioning dairy products as the healthy, natural choice over sodas and junk food. The other, a public relations campaign demonstrating that dairy families share the same values as the people voting on milk with their check book and at the ballot box. I honestly believe people have forgotten that milk is better for them than Coke. It’s time for that to change.

Demand management needs to include other reforms such as eliminating programs that stifle innovation in the industry. If the CCC quit buying powder, I have a feeling we would figure out a better use for it. We always do.

On the supply side we need reform of our price discovery system. We need a supply management plan that will efficiently send signals to the market to cut supply but not hinder domestic growth and international expansion. We need a safety net that is flexible, changes with market conditions, is equitable to all dairy farmers, and is not a burden on the taxpayer. We need to reform trade policy and definitions of dairy products so that “fair” trade wins out over “free” trade. We need to change our relationship with the processor and shift some of the responsibility for marketing and profit making to them.

There are many more issues to discuss and a lot of details need to be worked out. Honestly, I don’t have the solution to any of these problems, but I know enough to understand only a comprehensive plan will be sustainable. I cannot support a single tiered approach. The last 18 months have been hell, and the future is still uncertain. But one thing is for sure, if we don’t put our differences aside and lock ourselves in a room until we emerge together with a total solution, we won’t be here next year to fight about it. In my opinion, NMPF’s Foundation for the Future plan is a good start. Now let’s all go to work.

(Side Note:I did not write this article as an endorsement of the NMPF Foundation for the Future plan. I am merely suggesting this should be the basis of our conversations and foundation for total industry reform. If you find that you have an interest in this plan and are willing to start discussing it, take a moment to voice your opinion at this poll: http://poll.fm/1vhac. It would be nice to see where people really stand on this issue. FYI, the poll has been active for many months before the NMPF’s plan came into existence.)

DG

AG ALERT
Issue Date: June 23, 2010

By Ching Lee
Assistant Editor

Kings County dairy farmer Dino Giacomazzi is looking to the future, or more accurately, to the futures market.

After weathering one of the most financially tumultuous years in 2009, he and a growing number of dairy producers are increasingly turning to commodity futures and options to try to minimize their risks against the boom-bust effects that have pummeled the nation’s dairies during the current global recession.

Giacomazzi said he’s been taking classes for the last year and a half to learn the ins and outs of financial risk management, including how to hedge his feed costs and milk price through market futures and options, and forward contracting.

He said this knowledge will be invaluable as farmers and ranchers try to adapt to progressively more unpredictable economic conditions in the future.
“I think things were not as volatile in the past and so we’ve been able to survive the cycles thus far without risk management,” he said. “But now the cycles are much deeper and the low periods of the market are longer, so it’s something that we’re going to have to learn to do in order to survive.”

Lending institutions also are starting to encourage farmers to adopt risk management practices. In a recent report, Wells Fargo, the largest commercial agricultural lender in the U.S. and a major dairy lender, weighed in on the rising economic volatility farmers and ranchers face and the impact that will have on agricultural financing.

Using the dairy sector as a case study on margin volatility and how lenders are responding, the bank warned that the business of financing agriculture will need “to change to deal with this increased price and margin volatility.”

Michael Swanson, an agricultural economist for Wells Fargo and author of the report, said it’s not so much that lenders are requiring farmers and ranchers to do more risk management as a lending criterion; it’s that changes in agriculture and the economic environment are forcing farmers to have better business acumen and greater financial sophistication.

“And lenders are going to come to the realization that what was an appropriate debt-to-equity leverage before, in a less volatile environment, is not appropriate anymore, unless it’s accompanied by sophisticated risk management and good production practices,” he said.

While some producers are beginning to use risk management tools such as futures and options, forward contracting and insurance, Allison Specht, an economist with the American Farm Bureau Federation, said these strategies, for the most part, are still not very popular among dairy farmers around the country.

“It’s difficult to learn,” she said. “It’s not something that producers have a great deal of experience with. But it’s something going forward that might be a good idea for the industry to look at.”
Up until 2007, dairy producers’ feed costs were relatively stable, Swanson said, so they didn’t worry much about the price of their milk falling significantly below their cost of production.

Also, producers were often rewarded for prioritizing their cost of production and labor management above everything else, he added, so there was little incentive for them to develop their hedging and financial analyses.
Aside from the complexity of futures markets, Giacomazzi said many farmers may still be reluctant to use them because of horror stories they might have heard about those who got burned.

Futures markets, however, are not new to agriculture, said Leslie “Bees” Butler, a dairy economist at the University of California, Davis. In fact, it was agriculture that first inspired the modern concept of futures trading, a process that was started in the 1840s in Chicago, which had become a major center for sale, distribution and storage of grain.

Before futures trading came about, farmers were often at the mercy of dealers when it came to selling their commodities. So a system was set up to allow farmers to lock in a price for a commodity early on and deliver it much later. This also allowed farmers and buyers to hedge their risks and speculate on the future price of the commodity.

“That’s what a futures contract is—a guarantee to sell at a certain price at a future date,” Butler said. “What you’re doing in the futures market is offsetting what you’re actually doing in the actual market.”

He said even though dairy farmers are used to futures contracts, such as when they forward-contract their feed to ensure a set price, many of them may not be hedging their purchase and managing their risks properly.
For example, when corn prices rose to record levels in 2008, many dairy farmers entered into feed contracts when prices were high, and then got locked in to those prices even when the price of milk came tumbling down in early 2009.

“What they should’ve done is once they bought that feed at that price, then they should’ve also gone to the commodity market, purchased a put option so that if the price of corn were to come down, then they would get some money back,” Giacomazzi said.

Butler said they also could have hedged their milk against the possibility of a price drop on the futures market.

“If you buy something today and you’re stuck with that price, you have risks—the risk of the price going up or down,” Giacomazzi explained. “But risk management is opening yourself up for an opportunity to capture some of the money back if the price goes up or down.

“When you manage risk, you fix a minimum price for your milk and a maximum price for your feed, and then you take advantage of any increase in milk or decrease in feed,” he said.

Butler said these financial tools are nothing more than insurance policies for the farm. He and Swanson agree that using these tools is too vital a function to outsource to consultants and recommend farmers learn to do it themselves.

They also stressed that having a strategy to reduce risk is important regardless of an operation’s size. And with increased volatility hitting every sector of agriculture, risk management is not just for dairies.
“If you’re going to be in the business, this is a core concept of agricultural production—the ability to look for risk mitigation in the futures market,” Swanson said.

Giacomazzi said while he’s glad to hear banks such as Wells Fargo are trying to promote risk management, he would like to see agricultural lenders “actively participate,” because ultimately they will have to provide the financing needed for farmers to implement their risk management plans.

“I think these banks are starting to look at it now because the dairymen are asking them,” he said.

Leonard Van Elderen, CEO of Yosemite Farm Credit in Turlock, said agricultural lenders such as the Farm Credit system are getting involved to the extent that they are providing seminars to educate farmers about what’s available to them.

“But there’s a fine balance there of encouraging education and lender liability,” he said. “We’re lenders. We’re not managers. And each of our members needs to make a decision for their own operation that suits them best.”
(Ching Lee is an assistant editor of Ag Alert. She may be contacted at clee@cfbf.com.)

Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.

Ag Alert
Issue Date: September 23, 2009
By Ching Lee
Assistant Editor

Original Article

Farmers and ranchers say their use of social media helps them reach people who are unfamiliar with agriculture. Siskiyou County cattle rancher Jeff Fowle, above, says he hopes his online messages will influence the non-farming public’s perceptions of agriculture.

Whether he’s strolling through the corral, doing payroll at his desk or checking on a newborn calf, Stanislaus County dairy farmer Ray Prock likes to stop by what he calls his “virtual watercooler” to chat about his favorite topic: agriculture.

He does this by logging on to his Twitter account, a social networking Web site that allows users to exchange quick, frequent messages known as tweets. By firing up his computer or turning on his smartphone, Prock can get a glimpse of what people in the global community are saying—and talk back to them.
Read more…

Struggling dairy farmers debate breeding technique
Published online on Friday, Oct. 02, 2009
By Robert Rodriguez / The Fresno Bee

The use of a specialized breeding technique to boost the number of milking cows by thousands is generating debate in California’s dairy industry.

Some say it doesn’t make sense to produce more milk as farmers struggle with low prices, high debt and an oversupply. But supporters of the technology say it could be a valuable tool for efficiently raising more cows — and ultimately ramping up production when demand rises.

In the central San Joaquin Valley, the heart of the nation’s dairy industry, the slumping dairy economy has hit farmers hard. Many dairy farmers are losing money, while others have left the industry.
Read more…

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net

June 22 (Bloomberg) — Dino Giacomazzi, whose great- grandfather started the Giacomazzi Dairy in Hanford, California, in 1893, said he had no choice but to sell 100 cows, or 11 percent of his herd, in the past four months. Rising feed prices and a world surplus meant it cost as much as $17 to produce $10 of milk.

“Producers are in an absolute state of panic,” said Giacomazzi, 40. “To spend 100 years building a dairy business and see much of that equity disappear in a year is very troubling.”
Read more…

By Seth Nidever
snidever@HanfordSentinel.com

In Europe, farmers have taken matters into their own hands, blocking traffic with tractors and bringing cows to the European Union capital to protest plunging milk prices. In California, the price situation is just as bad, but local producers say they aren’t going to use European-style protest methods.

The idea of not shipping milk for a couple of days was suggested at an impromptu meeting of producers in Tulare on Thursday, but was quickly shot down amid fears that it would generate negative publicity.

European farmers don’t seem to have the same qualms.

On Monday, they clogged Berlin roads with tractors and unloaded cows at European Union headquarters in Brussels. A few farmers skirmished with police.

At least one local producer admires the European approach to the crisis that is threatening to drive many farmers out of business.

“I think here in the U.S. we’re too passive. That’s the culture difference,” said Joaquin Contente, a Hanford dairy operator.

Contente isn’t alone.

“I applaud the fact that these farmers are willing … to take some action. This is something we never do in this country,” said Hanford dairyman Dino Giacomazzi.

But Giacomazzi, like many local producers, doesn’t want a government-run system similar to what Europe has, where the EU has managed farm prices for decades by guaranteeing minimum prices or buying up extra production to keep prices artificially high.

Giacomazzi said he agreed with the idea that California dairy farmers are largely responsible for the current glut.
Read more…

Published online on Wednesday, May. 06, 2009
By Robert Rodriguez / The Fresno Bee

The U.S Department of Agriculture is providing more than $20 million to help California farmers and ranchers reduce air pollution.
Read more…

By Seth Nidever
snidever@hanfordsentinel.com

Milk prices inched up in March, but that didn’t give much encouragement to local dairy farmers mired in a severe downturn with no end in sight. “We need it to go up by about $8,” said Dino Giacomazzi, who runs a multi-generational dairy on Sixth Avenue near Hanford.

Read more…

By Seth Nidever
snidever@hanfordsentinel.com

When a brutal 2006 heat wave caused cows to drop dead and start piling up at his Hanford-area dairy, Dino Giacomazzi started composting them. Composting was allowed as an emergency measure at the time because rendering facilities — the services that pick up dead cows and convert them into pet food and shoe leather, among other things — were overwhelmed with carcasses. But before Giacomazzi could finish his composting experiment, county officials yanked approval, and the process of turning deceased bovines into fertilizer became illegal again.
Read more…

http://ucanr.org/strip-till

Publication 8361 / January 2009
Read more…