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February 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.

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.

 

Cattlemen’s beef with dairy

Feb 04, 2009

By Jim Dickreall

My colleague and friend, Beef Today editor emeritus Steve Cornett, stirred up a bit of hornet’s next last week when he took the dairy industry (and some in the beef industry) to task over rumors about a federally subsidized dairy buyout.

Follow this link to read his blog: “Change for chumps.”

“You’d expect cattlemen of all stripes would get up in arms about a program that uses their taxes to subsidize dairy farmers to dump their beef into their already wrecked beef market,” Steve writes. And with cattle feeders losing $150 to $200 per head on every steer they sell nowadays, they’d have a legitimate gripe, he says.

Well, okay. But as this tsunami of a price crash washes over dairy farms in the next month, most dairy producers will be looking at losing maybe $80 to $120 or more per month on every cow they’re milking.  
 
Steve is right that it might take more than 300,000 cows in excess of normal culling to take enough milk off the market to turn dairy prices around. And he is also right in that these cows will come to market—one way or the other. They’ll either come in a bunch through a massive CWT buyout, or they’ll straggle in month after month after month as dairy producer equity erodes and their lenders eventually say, “Enough is enough.”
 
For the record, the National Milk Producers Federation (NMPF), which administers the Cooperatives Working Together program, flat out denies it has requested Federal bail out money to subsidize another CWT cull program. What NMPF has done is request that USDA meet its obligations, written into the 2008 Farm Bill, to properly operate the dairy price support program, implement the Dairy Export Incentive Program, and offer some flexibility in the Milk Income Loss Contract program.
 
What Steve doesn’t mention, and what the National Cattlemen’s Beef Association also fails to acknowledge, is that the European Commission is again subsidizing (dumping) European dairy surpluses onto the world market. Without that dumping activity, U.S. dairy products had finally became competitive on world markets over the last few years. In 2007, the U.S. exported about 10% of its milk solids at profitable prices. As the U.S. economic crisis went global last fall, those markets started to dry up. But it wasn’t because of falling demand; it was because of the crisis in cash availability and credit markets. 
 
So, in a very real sense, the crisis in U.S. dairy markets was precipitated by irresponsible U.S. non-oversight in the housing, financial and credit markets over the past decade. So maybe the U.S. government should be on the hook for correcting some of these errors. 
 
Also, for the record, I have not been a big supporter of CWT efforts to kill cows. I am a believer in markets. That is why I have always felt that CWT efforts to build and develop markets through export incentives was the better direction to go. 
 
But going that route this time is an impossible journey. The CWT export effort, funded from the 10¢/cwt voluntary contribution, will have to compete with the European Union’s ability to pour millions of Euros into their dairy export subsidies. It is not a fair food fight. 
 
Second, as Steve says, 300,000 more dairy cows are going to flood markets in the coming months. So the options are: Do you want to do this the fast, be it painful way? Or, do you want to do it the very slow, very, very painful way that will bleed dairy and beef producers for months on end?             
 
--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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