Aug 22, 2014
Home| Tools| Events| Blogs| Discussions Sign UpLogin


August 2009 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

MPCs Aren’t Dairy’s Biggest Problem

Aug 18, 2009

By Jim Dickrell

At the risk of being labeled the anti-Christ, I’m here to report that dairy imports—most notably milk protein concentrates (MPCs)—are not the reason U.S. domestic milk prices are where they are.

And, by the way, I’m not the only one reporting this bit of non-news. USDA, the National Milk Producers Federation and the U.S. Dairy Export Federation all acknowledged as much in congressional testimony this past month.

For starters, I’d like to report a few numbers on dairy imports that were released by USDA’s Foreign Agricultural Service last week. Through June, imports of MPCs were down a collective 12% from the same six-month period in 2008. In fact, MPC imports have not been this low for five years, and six of the last seven.

Casein imports, both casein and caseinates, are down a whopping 38% through June. They haven’t been this low this decade. Admittedly, cheese imports are up slightly—1.2%. But that, in part, is due to the fact that cheese imports last year were at their lowest level this decade.

Taken together, MPCs, caseins, cheese and butterfat imports are down 12.7% January through June compared to last year.

And the other amazing thing is that the total tonnage of these imports has very little variation year-to-year since 2001—regardless of whether U.S. milk prices are $10 or $20. There’s a certain level of demand for these products—year in, year out. If they were price-sensitive, you’d think you’d see ebbs and flows with our wildly swinging milk prices.  

Mark Stephenson, a Cornell University dairy economist, did some analysis on MPCs this past spring and came to this conclusion: “[Dairy] imports vary quite a bit month-to-month but they are not trending upward in any significant fashion—particularly as a percentage of U.S. production of milk. 

“A case could be made that they ‘displace’ or ‘augment’ about 0.8% of U.S. milk production,” Stephenson says. “The milk that is displaced by MPC imports in the United States is the amount of milk from about 70,000 cows.”

But they displace that amount of milk when milk prices are at their current level, or when they exceed $20, as they did in 2007 and 2008.

MPC opponents say that is only half the problem, however, because one pound of MPC can displace several pounds of milk solids in the cheese vat. True. Except no one knows how many MPCs currently being imported are being used for cheese and how many are going into specialty products where they can only be used because of their unique properties.

The latest information anyone has on MPC use is now five years old: It was produced by the International Trade Commission in 2004. At that time, about 62% of MPC imports were used in cheese, 24% in sports and specialty drinks and the remainder in other products.

For the sake of argument, assume imported MPCs are displacing 150,000 U.S. cows today. But they were displacing even more last year (with higher MPC imports), when milk prices were at $20.

The fact is that U.S. exports have fallen dramatically from a year ago (click here for export report). Through June, our dairy exports were $1.04 billion, down 51% from 2008.That’s where the problem lies--due to the global recession, changing currency values and a resurgence of milk production in New Zealand.

Senator Chuck Schumer (D-N.Y.) introduced legislation in late July to create tariff rate quotas of MPC and other dairy protein imports. And yes, the National Milk Producers Federation is supporting that legislation.

That’s all good politics. But it could create its own new set of trade-related problems as we negotiate those tariffs with our World Trade Organization partners. That’s especially true now, as the U.S. economy tries to claw its way out of our current Great Recession.

The bottom line, folks, is that if the U.S. dairy industry is to grow and prosper, it must continue to grow market share overseas. As it does, it must be willing to tolerate some level of imports here at home.

—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.

 

CWT maximum bids too high?

Aug 05, 2009

By Jim Dickrell

Cooperatives Working Together officials and accountants are working their way through the latest deluge of bids for the eighth round of herd retirements.

We’ll know by the end of the week, at the latest August 10th, on how many herds and cows have been accepted into the program. What we already know is that the maximum accepted bid will be $5.25/cwt. This is the first time CWT officials have announced a maximum bid ahead of time.

Several producers I’ve talked to have wondered why it was set so high. At $5.25/cwt, a 1,500 lb. Holstein producing 20,000 lb. of milk would generate $1,050. Tack on the cull value of roughly $600, give or take, the total value of the cow comes to $1,650. While that still might fall short of the +$2,000 price such an animal might have commanded a year ago, it’s still not bad and probably far above the current loan value of the animal. 

Keep in mind, too, that successful CWT bidders get this value on all of their animals. Had they sold out through a cattle jockey or even via auction, 20% or 30% of the herd would be sold for cull value only.

So why does CWT set the maximum bid where it does? I called Jim Tillison, CWT CEO, and asked. “We’ve always established a maximum bid that we would accept. But this is the first time we made it public,” he says.

“One reason is with the shortened time frame for submitting bids in this round, we didn’t want producers to guess what our maximum bid would be.”

To establish the maximum bid, National Milk Producers Federation economists survey the country to determine what top selling replacements and springing heifers are selling for. They then subtract the cull value, and then divide the remainder by average production. The result: A maximum bid of $5.25 this time around. Fair enough.

A friend of mine from Colorado, however, still questioned why the bid was so high. His thinking: If you set the maximum bid at say $4/cwt, you could take out 30% more cows. 

Tom Wakefield, a Bedford, Pa. dairy producer and NMPF board member, testified before Congress two weeks ago that CWT has $160 million left in its kitty through the end of 2010. At a maximum bid of $5.25, that means it will be able to buy out about 152,000 cows at that maximum. But if the bids were capped at $4, CWT would be able to buy 200,000 cows. 

Yes, the winning bidders will only get $1,400 per animal (CWT price of $800 plus cull value of $600), but it’s still above loan value for I would think the vast majority of producers. 

The goals of CWT, as I understand them, is to both remove cows and allow bidding farms to exit with dignity. They are both laudable.

But as this dairy crisis drags on and on and on, it becomes increasingly clear that the only solution is to reduce cow numbers and milk production. In fact, Iowa’s Farm Bureau president Craig Lang testified to Congress last week that his organization believes cow numbers must still drop 3%. That’s another 275,000 cows, based on June numbers.

Tillison expects cows accepted into the 8th round will be completely removed by the end of September. It’s too bad more cows couldn’t be removed by then. Then again, CWT is your money and your program. You get to decide how it should be spent. Just don’t ignore the opportunity cost of not doing more for less.

—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.

This column is part of the Dairy Today eUpdate newsletter, which is delivered to subscribers biweekly and includes dairy industry analysis, dairy nutrition information as well as the latest dairy headline news. Click here to subscribe.

 

Log In or Sign Up to comment

COMMENTS

 
 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions