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Avoiding old wars

Ben Yale Published on 10 August 2011

The traditional Fourth of July celebration on the National Mall reaches a climax when the National Symphony Orchestra, accompanied by 16 cannons and city church bells, plays Tchaikovsky’s “1812 Overture.” The piece celebrates the forcing of Napoleon out of Moscow in 1812 and Russia’s ultimate victory two years later when Tsar Alexander I led a triumphant Russian army through the streets of Paris.

Napoleon had waged war in Europe for almost 23 years and, at that time, boasted the best army machine (being best does not guarantee victory, however). As a result, Napoleon ruled most of Europe until he was sent to exile on the island of Elba. He did not stay long. Nine months later he escaped and led the 100-day campaign that ended with his final defeat at Waterloo.

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Though separated by an ocean, the Napoleonic wars had a lasting impact on America.

Almost all of the commanding generals of both the North and South in the American Civil War graduated from West Point. West Point cadets studied in detail the strategy and tactics of the Napoleonic battles which were well documented. Treatises and smaller works have been written noting the military tactics and strategies of the grand armies of Napoleon, Wellington and Alexander.

When the war for the union broke out in this continent, the warring generals used those same strategies. This is no surprise because generals are famously noted to be fighting their own wars with the last war’s tactics.

While many of these tactics proved as useful in Virginia as Bohemia, the technology of war had progressed by the Civil War period to the point that some tactics were less useful.

One of the older war strategies, employed even as recently as the Revolutionary War, called for the attacking army to come in tight waves to overwhelm defenders. If the first wave did not make it, a second wave was sent, and so on. Mass running head-on into another mass firing appears to be a recipe for mass suicide. Not so.

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The tactic could be successful because reloading each shot through the barrel took time. A crack rifleman could reload and fire four or more times per minute. In 15 seconds a running opponent could gain as much as 50 to 100 yards between rounds. And not every trigger pull resulted in a clean shot. Poor or inadequate powder, dampness and other factors reduced the number of effective shots even more.

The standing musketeer was also an easy target for the enemy. When infantry who were running exceeded bullets being fired and hitting targets, victory was possible.

In the half century between the Napoleonic Wars and the American Civil War, technology brought steam-powered trains and boats to move men and material and the telegraph to send messages. Don’t forget breech-loaded rifles. These new weapons could fire and reload faster and were more accurate. A rifleman could be prone when shooting, making himself less of a target.

But generals always fight the last war, and the frontal assault was routinely used. Sometimes it was successful but often, particularly when the defenders were on high ground, it was a failure. The Union lost thousands in such a move at Fredericksburg and there is, of course, the Confederates’ failed Pickett’s Charge at Gettysburg, which represented the beginning of the reunion of the states.

With modern, faster and more accurate weapons, the ratio of infantry to accurate bullets was now nearing parity. The Union (with more soldiers to spare) would, and did, ultimately win such a war fought in such a fashion.

Lessons are learned slowly. Another half century later, Europe was again engaged in a great war. Generals called their infantry to climb out of foxholes and trenches and charge opposing sides to overtake the defenses. This time rapidly firing, and accurate, machine-loaded rifles mowed them down. The infantry-to-accurate-bullets ratio was to the charging soldier’s great disadvantage.

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The result was huge losses of men and a stalemate until America entered the war with General John Pershing insisting he lead his troops his own way.

Applying techniques of the past to present challenges does not lie solely in warfare. Great trial lawyers have lost current cases relying on older lessons. Even in operating a dairy, challenges are met by what worked before. A great source of generational disagreement comes often as a result of a disagreement as to what past lessons apply.

Dairy policy faces significant change as older policies are challenged by today’s dairy environment. Before jumping into the fray with old ideas and tactics, understanding the change in the industry could save producers and the industry some unfortunate and serious losses.

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The last great battle for dairy policy took place in 1995 and led to the 1996 FAIR Act. Major reform of the federal orders resulted as of January 1, 2000. Since 1995, the year when most of the data used for change was collected, dairy has changed.

The reform itself created one of the greatest changes. Minimum prices, which were primarily based upon competitive prices in the Upper Midwest, prices which considered both the value of finished product at the plant and the needs of producers, were replaced by a national end-product pricing formula. This formula mechanically established a proxy of the value at the plant, ignored producer interests and tagged price movement to the most volatile pricing index in the industry.

The minimum dairy prices, for which now every stakeholder attaches either the price paid for milk or the price at which product is sold, rely upon the cash price for purchases and sales of last resort. The CME responds the earliest and the fastest to even the slightest change in market movements. In turn, the minimum prices for milk respond lockstep. (Yes, technically NASS survey prices are used, but no person who understands markets today can say that.)

The result is ever-increasing volatility as more and more of the industry ties into this pricing formula. More participants in the system add to the power and speed of the volatility. In 1995, the fight was whether Eau Claire should set national milk prices; today, it’s the role of the CME and make allowances.

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The big fight more than a decade ago was over Class I pricing. The USDA reported that total fluid milk sales for March of 2000 were 4.847 billion pounds. Post-2005-reform sales have not been good. Despite a growing population, only 4.683 billion pounds of fluid milk were sold in 2011.

Other categories have grown. Dairy exports did not contribute to higher milk prices in 1995 and 1996. With few and very small exceptions, the American dairy system used exports for dumping excess milk. This has changed. Gross value of dairy exports multiplied over five times from $641 million in 1995 to $3,473 million in 2010.

As compared to the value of producer milk, it went from less than 3 percent to 11 percent, and early 2011 reports show even more milk price value tied to exports. The record-high prices benefitting dairy farmers in 2004 to 2005, 2007 and 2011 were all driven by export demand, not the domestic market.

Feed costs, too, as a percent of milk have changed dramatically. The milk-to-feed price ratio has trended lower, from being between 2.5 and 3 in 2005 to between 1.8 and 2.5 today. High grain prices have driven costs to new levels. The 1995 average all-milk price of $12.74 per hundredweight (cwt) meant a milk-to-feed price ratio of 2.61.

Such a milk price today would result in negative margins for most producers. It is not just the heights of grain prices, but the volatility of grain prices combined with the volatility of milk prices, that creates the change in the economic picture.

In 1995, the USDA reported that 6,090 operations with 200 or more cows produced 32.76 percent of the milk. For 2010, the USDA reported that 760 operations with 2,000 or more cows produced 32.5 percent of the milk. The 7,400 farms with more than 200 cows in 2010 produced almost 74 percent of the milk.

At the same time, overall milk production increased almost 22 percent, virtually all of that in the larger herds. The latter in large part from an increase in average annual production per cow of almost one-third (16,405 to 21,419 pounds).

Domestic markets of milk in 1995 were primarily local. Little milk moved more than a few hundred miles on a regular basis. Today, bottled milk is distributed nationwide.

These trends will continue. By the time any changes from the Farm Bill take effect and show results, the number of farms will be fewer still and the remaining producing more milk. Growing exports will drive dairy milk prices higher and create a demand for even more dairies. By the end of that Farm Bill, circa 2017, these trends will show even more pronounced changes.

The 1996 Farm Bill addressed a primarily parochial dairy industry based upon domestic sales of milk produced predominantly on many smaller farms. These farms’ profits were predicated almost exclusively on milk prices, not milk prices and feed costs. Producers sought higher milk value with Class I pricing.

Today, dairy production comes from fewer, more efficient operations, with national milk distribution and significant and growing export markets. Volatile and high feed costs threaten even record milk prices. Higher demand at higher prices in exports drive producer prices, not declining fluid sales.

The dairy battlefield has changed dramatically. No longer can the industry afford to focus on putting resources solely into the small percentage of milk production at the expense of the predominant supply. Expanding exports, and production to support it, to in turn increase producer profits dominates fights over Class I pricing. Taxing and penalizing milk gained by incorporating new technology and developing efficiencies, never wise at any time, would be disastrous for an industry poised for growth.

With the real risk that leaders will seek to fight old wars in the guise of a battle for dairy progress or to inflict unneeded casualties on farmers and the industry as a whole, the answer may be to ignore a fight altogether. That is, producers can demand no policies and let the market forces continue to build the industry.

The answer to unneeded losses in battle is often no battle at all. The greatest victories often come by deciding there is nothing to fight about. The current growth of dairy suggests strongly that is the case.

The “1812 Overture” remains a majestic classic. While it musically brings listeners through the threats of being conquered and occupation by the enemy, it is surrounded by a call to God for deliverance and ultimate and joyous victory. And there are no casualties. That is, unless someone foolishly and unnecessarily fires a loaded cannon. PD

Illustration by Mercedes Opheim.

Ben Yale

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