No USDA dairy buyout bail out
Mar 30, 2009
By Jim Dickrell
It was one of those last minute, almost throw-away, comments which grabbed my attention as Secretary of Agriculture Tom Vilsack wrapped up his press conference last Thursday. It came at the end of his announcement of USDA moving 200 million lb. of Commodity Credit Corporation (CCC) milk powder into feeding programs.
“We are not going to duplicate problems of the past [with another whole herd dairy buyout]. We’re on more of a glide path to reducing the herd,” Vilsack said.
Exactly what did he mean? I didn’t get the chance to ask, since Vilsack immediately went into his concluding statement and the press conference ended soon after. The conspiracy theorists among us (me) immediately wondered if a deal had been struck between USDA and the National Milk Producers Federation (NMPF): 200 million lb. of powder isolated from the market in return for either a delay or outright cancellation of another Cooperatives Working Together (CWT) herd buyout this spring.
After all, the National Cattleman’s Beef Association and other cowboy groups went into apoplectic hysteria earlier this year when some suggested Federal bail-out money be used to help fund another dairy buyout. As we all know, all politics is local. And Congressmen and women with large cowboy constituencies—of either party—could cause the Obama Administration heartburn as it tries to move its massive budget through Congress.
Chris Galen, NMPF spokesperson, assured me there was no such quid pro quo deal. “We were not even certain as to what the Secretary was referring to,” says Galen.
“But an industry-run program is less of a blunt instrument than a USDA program, such as the whole herd buyout of 23 years ago,” he says. Customized programs, such as CWT, can be more adept than USDA efforts. (For more on the new CWT rules, go to: http://www.cwt.coop/about/newsletters/CWTNewsMarch2009.pdf )
Also for the record, no date has been set for the next CWT round. “The timing for the next herd retirement hasn’t yet been set; stay tuned,” says Galen. “And to clarify, as was the case with the past several rounds, there is not a set goal for pounds of milk or numbers of cows to be removed. It mostly depends on how many reasonably priced bids are submitted.”
So, having cleared all that up, will USDA’s donation of 200 million lb. of powder to feeding programs make a difference? It essentially wipes USDA cupboards bare. As of last week, USDA had purchased 205 million lb. of powder under the Dairy Product Price Support Program since it again starting buying powder last fall.
By USDA moving that powder to school lunch and food donation programs, it removes that menace to the market once powder prices rebound. Remember, once dairy commodity market prices climb, USDA has the authority to sell its powder inventory back to the commercial market to recoup its $160+ million in CCC expenditures.
Keep in mind that 200 million lb. of powder represents 2.3 billion lb. of milk equivalent on a skim solids basis. Think of it this way: If the average rail car holds 45,000 lb. of powder, it would take about 4,400 rail cars to hold 200 million lb. of powder. If the average rail car is 60’ in length, the powder train to nowhere would stretch 50 miles. Dumping that volume of milk powder back on the market could have a depressing—even devastating—impact on price recovery.
Even so, powder prices remain depressed—and more powder could (will) continue to flow into government warehouses. For the week of March 20th, California was averaging 80.87¢/lb. for powder, says Tiffany LaMendola, director of economic analysis for Western United Dairymen. That’s essentially the Farm Bill authorized purchase price to continue to move powder into CCC storage. The national average price for powder, at 82¢/lb., isn’t much better.
“USDA’s announcement last week is a positive first step,” says LaMendola, “because the powder the government currently owns won’t be hanging over the market for the next year to come.
“But we’d also like to see reauthorization of the Dairy Export Incentive Program, which could help move even more powder overseas,” she says.
At his press conference last week, Secretary Vilsack said USDA was consulting with the U.S. Trade Representative’s office and others within the Obama Administration to determine if any trade issues would arise with DEIP reauthorization. “We’re in the process of looking at any problems or concerns that could arise before we re-institute DEIP,” he says.
LaMendola says the third leg of for dairy recovery is CWT. For California producers, and really, for producers across the country, another CWT herd buyout can’t come soon enough.
So last week ended—and this week started--with the dairy industry batting one for three.
- Two hundred million lb. of milk powder isolated from the market.
- No DEIP.
- No CWT herd buyout—yet.
—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at email@example.com.
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