Is CWT Part of the Dairy Price Problem?
Jun 08, 2009
By Jim Dickrell
Rather than being part of the solution, the Cooperatives Working Together herd buyout program might be part of the problem.
Tom Elam, a PhD economist and president of FarmEcon, LLC, voiced some unpleasant truths in a series of dairy producer meetings sponsored by Elanco last week in Iowa, Wisconsin and Minnesota. Elam notes every livestock sector in the United States is faced with unprecedentedly high feed costs and sharply lower exports.
“All other livestock segments have already made major adjustments and reductions in meat supplies,” Elam says. “But the dairy industry is not making any adjustments.”
Elam estimates the U.S. dairy herd must fall 300,000 cows for supply to come back in balance with demand. Through April, USDA estimates cow numbers have fallen just 30,000 head from January, meaning we’re just 10% of the way to recovery.
Another 100,000 head will be culled through the seventh CWT round in the next month or so. But even then, we’ll be barely half way to the 9 million head level we need to be.
Elam walked through the same slow slog of CWT implementation that I complained about in this column a month ago. First, dairy producers wishing to bid in the CWT had to wait months for the sign-up announcement. Then they had a month to bid, and waited another week or two or three to see if their bids were accepted. Meanwhile, other producers were waiting to see how many cows were accepted into the program.
In the meantime, everybody stopped culling. USDA’s April slaughter report shows 23,000 fewer cows were slaughtered than in March, and amazingly, 4,000 head fewer than a year ago when milk prices were $6 to $8 higher.
And when everybody stopped culling, as much or more milk is coming to market. Every processor I talked to last week at the Minnesota Dairy Leaders Roundtable and at the Elanco meeting was reporting milk intakes that were equal to or greater than this winter. In the Southeast, milk tankers are waiting 15 to 18 hours in line simply to unload, USDA reports.
What’s happening is every producer is waiting for his neighbors to blink first. And prices aren’t improving. The June Class I price came in at $10.08/cwt. The May Class III price was announced last week at $9.84; the May Class IV at $10.14.
At the Elanco meetings, Elam couldn’t predict when milk prices will rebound to profitability. The best he could do: “We could see fourth quarter all-milk prices at $14/cwt,” he says. “But 300,000 cows (including the 100,000 CWT leaving this month) will have to go away by the end of the year.”
So the question is two-fold: Who will blink? And when will they blink? One producer I sat with at lunch last Thursday made this prediction: “Things won’t turn around until everyone is convinced things won’t ever get any better.”
My advice: If you can’t survive the next six months at your current mailbox price, don’t let what equity you have left erode further. The sooner you make that decision, the better off you and the rest of the industry will be.
—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at email@example.com.
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