Even with $20 milk, soaring feed, fuel and fertilizer cost are gobbling up profit margins faster than dairy producers can cash their milk checks.

As a consequence, the National Milk Producers Federation (NMPF) succumbed to pressure last week and announced it is launching its 5th round of cow culling through its Cooperatives Working Together (CWT) program.

I hope this doesn’t come back to bite us. A cow-killing program right at the time of record retail dairy prices will not sit well with consumers nor the media.

Food prices are already under intense scrutiny in the food-versus-fuel debacle. We are now operating in an entirely new high-price environment—and the old rules of dairy price inelasticity will surely be tested. We’re already hearing stories of price resistance on high-end organics.

Sending another 50,000 Elsie-the-cows to slaughter will be perfect fodder for a dewy-eyed Katie Couric as she chronicles the struggles of single moms struggling to feed their tiny toddlers. 
 
And yes, we all understand that a dairy producer’s share of the retail milk price is less than 40%. National Milk’s Jim Tillison, who directs the CWT program, says consumers will have to be educated about the farmer’s share, and your need for higher prices. That’s a tall order. 

Wal-Mart women, who now purchase more milk than anyone else in this country, aren’t likely to see these nuances in retail milk marketing. All they will see are higher milk prices brought on by dead cows.
 
Higher commodity prices will also affect potential export sales. With nearly 10% of U.S. milk solids now being exported, higher domestic prices will jeopardize those sales as well. Because milk is priced at the margin, even a 10% decline in exports could have devastating impacts on domestic prices.

Granted, the recently passed Farm Bill offers few assurances. The $9.90/cwt dairy price support level is now so low it is irrelevant.

The expanded Milk Income Loss Contract (MILC) offers an improved safety net, at least for herds with 150 cows or less. The new feed cost adjuster would add another 95¢/cwt to the trigger, based on best-guess estimates from April. It would raise the trigger level to about $14.65 on the Class I mover. 
 
Many will argue, however, that this is not high enough given current costs. But again, remember this is a safety net—not a guarantee that every dairy producer will cover all costs. 
 
We also know that many of the herds that will bid in this next CWT round are last-generation herds. These likely will be the first to exit anyway as margins tighten. 
 
I would argue this normal, natural attrition is better than public cull and slaughter. For one, it’s hidden from public view. For two, Katie Couric would have had one less thing to talk about…. 
 
Perhaps, Ms. Couric would have even taken dairy’s side—pointing out that producers are leaving due to tight margins and putting pressure on retailers to hold the line on price increases. 
 
Wal-Mart has proven sensitive to public pressure. When Wal-Mart acts, others follow. It could have happened. Now, we’ll never know.


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