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RSS By: Jim Dickrell, Dairy Today

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

CWT positions for (big) buyout

Feb 18, 2009

By Jim Dickrell

Last week’s announcement that the Cooperatives Working Together (CWT) program was asking members to commit for two years is a clear sign the boys in Arlington, VA are gearing up for the big one.

For dairy producers across the country, it can’t come too soon.

My quick aggie math suggests, based on previous CWT herd retirements, that each 100,000 cows removed by the program takes about $100 million to fund, based on an average bid of $5/cwt and 20,000 lb/cow production. A 300,000-cow removal program would thus take about $300 million.

At a 70% participation rate, the CWT generates about $130 million annually. But not all of those assessments can be used for herd removal, since CWT also provides export assistance for cheese, butter and powder. Plus, it takes a million or two to administer the program as well.

In other words, to take large numbers of cows out of production, CWT requires a multi-year commitment. And that’s exactly what it is doing.

In last week’s announcement, CWT program officials say they received a verbal commitment from members to make the program a two-year program. Some member  cooperatives, not all, must now go back to their membership to get approval for two years. “We operate on documents, not verbal agreements,” says Chris Galen, spokesperson for the National Milk Producer Federation (NMPF) which administers CWT. So it could take some time—my guess is a few weeks, not months—to get those agreements in place.

Jerry Kozak, NMPF president and CEO, also emphasizes CWT has not sought government financial assistance to help fund CWT. But he did announce a “prominent agricultural lender” will provide CWT a line of credit tied to the level of funding CWT members are committing to invest in CWT over the next two years. That obviously suggests CWT will shoot for taking out a whole bunch cows in this next round.

As is its practice, CWT will not disclose precise dates or targets for removing milk or cows. Yet Kozak adds:  “Given where milk prices are compared to the cost of production, I believe we are in a position to remove a significant amount of oversupply in the future. But we will continue to be careful stewards of our resources. We are not going to squander money to meet someone else’s arbitrary expectations of what CWT should do.”

In a change to the program, CWT will now require any dairy operation which has a bid accepted in future herd retirements to agree and warrant to cease dairy production for one year. The warranty will apply to both the producer and the facility. That only makes sense.

In addition, dairy producers who participated in a previous herd retirement and have resumed operation will be permitted to bid in the next round. That, too, makes sense…a cow removed from anywhere is a cow removed from everywhere.

For more information on CWT, go to: www.cwt.coop

--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.


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COMMENTS (8 Comments)

I need to be more clear, I think at least 5 years for farmer and farm to be retired, if accepted by CWT on the buyout.
5:03 PM Feb 27th
The buyout can not come soon enough. But, 1 year is not nearly long enough. I think more along 5 years. And sexed semen, we are only going to cut our throats.
5:01 PM Feb 27th
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