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March 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.

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: )

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

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.


February MILC payments to start flowing April 1

Mar 16, 2009

If you’re checking your bank account every few days to see if your February Milk Income Loss Contract (MILC) payment has been deposited by USDA, don’t bother until April 1.

USDA must wait to calculate the feed-cost-adjusted-payment rate until the March Agricultural Prices Publication is released on March 30. Once the agency has those official prices, its economists can plug in the corn, alfalfa and soybean prices to get the adjustor. Then, it’s just a matter of forwarding that rate on to payment routers and get the  money to you, says Danny Cook, special program manager for USDA’s Farm Service Agency. (That’s also assuming that you, your creamery or your co-op has forwarded your February milk production final total to USDA.)

The funny thing is, February all-feed prices were already posted on February 27: $4.13/bu for corn, $143/ton for alfalfa and $9.58/bu for soybeans. If those prices remain as official, then the ration cost for 16% protein dairy feed will come in at $7.97/cwt, or 8.44% above the baseline ration cost of $7.35/cwt set by the 2008 Farm Bill. To see the feed cost adjustor calculator, follow this link.

That means the new MILC target price becomes $17.58, compared to $16.94 without the feed adjustor. And that should push the February MILC payment to $1.62/cwt, up 28¢/cwt from where it would have been without the feed cost adjustor.

Since we already know what the Class I price in Boston is for March, $12.68, we also know that the March MILC payment will be at least $1.92/cwt. (16.94 - $12.68 X 45%.) It likely will climb above $2 since USDA’s dairy ration costs aren’t likely to drop much in the next couple of  weeks. But again, that money won’t be getting anywhere near your check book until May.

Will either of these payments make a difference? If you were milking 100 cows in February and they each put 65 lb/day in the bulk tank, your February MILC payment will be about $2,950. In March, if the MILC payment jumps to $2.10, the payment for those same 100 cows could jump to $4,230.

Neither amount will make you rich. But it’s not chump change either. If your cost of production is $15/cwt, the February MILC represents 11% of that amount. In March, it would jump to 14%.

For large producers, of course, those payments will run out quickly. A 1,500-cow herd could eat up its entire 2.98 million lb. of MILC eligibility in the first month. A 750-cow herd has a two-month window of payments, and so on.

But large herds shouldn’t grouse too much. Since MILC payments are likely to be at their highest in February and March, large herds will have their payments based on these higher rates. So they could end up pocketing something like $45,000 in total MILC payments over the first month or two.

Smaller herds will have their payments spread out over more months with potentially declining MILC payment rates. As such, their total take will likely be less—simply because of those declining rates. That’s the luck of the draw. 

For more information on the MILC program, to: or


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

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.


How many cows need to die?

Mar 04, 2009

By Jim Dickrell, editor Dairy Today

A report in a national, well-respected, but not dairy-centric, publication (ok, Feedstuffs) last week suggested we might have to cull (kill) 1 to 1.5 million dairy cows before markets rebound.

Those are stunning numbers, suggesting we kill 10% to 15% of the U.S. dairy herd. After I picked my jaw back off the floor, I did what every self-respecting ag journalist would do: I started calling around to find out what the real experts are thinking.

In my three-person poll, and to a man they agreed, killing a million cows is far more than is needed. And 1.5 million is way out of bounds, which would drive milk prices into near-earth orbit and bring demand screeching to a halt.

At the same time, there wasn’t a lot of consensus in my poll either. 

On the low end is Ken Bailey, a dairy economist with Penn State. “If we can remove 10,000 to 20,000 cows per month above normal culling levels and get stability in production growth, we’ll be fine,” he says. “With the loss of BST on the East and West Coasts, milk per cow has already slowed down.”

And cheese markets are already showing some strength, he says. Any signs to the market that production isn’t growing will signal buyers they need to start buying again.

On the other extreme is Mark Stephenson, dairy economist at Cornell University. “Four hundred thousand to 500,000 cows are pretty easy numbers to come up with,” he says. “The industry is effectively in demand shock, with exports and domestic sales falling a part. 

“We were exporting 10% to 11% of our supply in the last year, and we’re looking at exporting just 40% of that this year. And domestic demand has been lackluster at best,” he says.
A 60% drop in export demand translates into 11 billion lb. of milk production left unsold. Assuming cows that are cull candidates are below average—says 18,000 lb./cow—suggests about 600,000 cows will have to processed through McDonalds and other burger venders. That’s a lot of hamburger. 

Stephenson also worries and warns that the culling—and therefore the recovery—will be painfully slow. “This is not a short-term fix. It takes a while to liquidate herds,” he says. “Lien holders have to be dealt with, auctions have to be arranged. So it will take some time to do this.

“We could see a little bump this fall, but it could be a year before we see real recovery. By the time we do, the general economy will be in a place that domestic and export demand will pick up as well,” Stephenson says.

The man in the middle is Scott Brown, an agricultural economist with the Food and Agricultural Policy Research Institute, better known as FAPRI, at the University of Missouri. His analysis suggests killing 250,000 cows will yield about $2/cwt on the all-milk price. 

“I keep thinking were 3 to 4 billion lb. in excess given where we are,” he says. That would suggest we need to cull 165,000 to 225,000 cows. 

The good news, says Brown, is that milk, cheese and butter prices at retail are coming down. “The income effects of the recession are bad, but we have retail prices that should encourage consumption,” he says.

“So I don’t think we have to get rid of a million cows,” he says. “And whether we have some type of program, either private or government-sponsored, we have to be careful we don’t go too far in the other direction.”
Culling too many cows—say a million or more—will send retail prices sky rocketing. “We’re just so inelastic on the demand side,” he says. If you tighten milk supplies 10% by culling a million cows, you could greatly damage domestic demand just as it is starting to recover. 

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

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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