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RSS By: Steve Cornett, Beef Today

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Oh. That's different.

Feb 04, 2009

By Steve Cornett

It is good that we talked like this.

I refer to the recent set of blogs and reactions to the trial balloon of a government-funded dairy buyout. The good news, from this writer’s perspective, is that apparently there is not going to be any such program.

The lobby dudes at NCBA tell me they “jumped on it early” while it was still a trial balloon, and said balloon is now deflated.

Great. It sounds like the dairy folks will use their own money to buy each other out of business. Sort of like a privately-funded retirement program, I suppose. Or, perhaps more like big companies buying out little companies. That’s fine. It was the government part that bugged me and lots of beef people and so, as Roseanne Roseannadanna used to say after her rants on Saturday Night Live: “Oh. That’s different. Never mind.”

That apology tendered, the comments by the anonymouses make me think not all the correspondents fully recognize the difference in a federal buyout and a privately funded buyout. If you read the comments, you’ll note repeated references to the fact that the cows are in excess and they must be culled

It’s not just the obvious principle of the matter of the government subsidizing one market participant at the expense of another. That’s bad. But what’s worse is the way government interventions work.

A cattle feeder can measure and/or manage a lot of his risks. You can kind of presume you might or might not get a big runup in feed prices and use the futures to protect yourself a little bit. You know there’s X% chance the calves will die and Y% chance you’ll get a blizzard. If you subscribe to CattleFax, you know within a range how many cattle are coming to market on top of yours. You can then use the futures markets to protect yourself a little bit.

You can keep one eye on the dairy market. The projections for cow slaughter include assumptions about dairy prices and cull rates and such. So if there are an extra quarter-million dairy cows in the herd, you can budget for them to enter the market over time. 

But “over time” is the crucial brake on it all.
 
The government is unpredictable. You can’t bet they’ll do what’s smart. You can’t bet they’ll do what’s fair. They could just as easily have bought a bunch of cows and deported them to Bangladesh—reducing U.S. cow kill—as dumping them on the market.

I mean, have you been watching the news lately?  Care to predict where this "Keystone Kongress" is going next? Sorry. I’m channeling Ms. Roseannadanna again. 

What made the '86 buyout so bad was the suddenness of it. Everybody knew the dairy cows were coming to market that year. It was the suddenness of A) the announcement and B) the marketing period.

The beef market is not like the dairy market. There are no government guys figuring out what beef prices should be. Beef cow prices are mere ether. They are nothing but what a buyer and a seller think they should be and when you inject surprises and fears and uncertainties, you get problems.
 
Bottom line: It caught the beef industry by surprise, it provided a sudden oversupply. It was a very bad spell for the beef industry and the bad feelings are still there. That’s not good for either group, and one would wonder why this sort of thing plays out in public rather than behind the closed lobby office doors in Washington.

These guys should not be trial ballooning balloons they haven’t agreed upon. The dairy lobby should know they aren’t going to ever get another buyout over anything less than the dead--or soon-to-be-fired--bodies of NCBA’s lobbyists.
 
And, if nothing else good comes of this discussion, at least my wife finds that at least one anonymous source agrees with her that your reporter is “an idiot.”
 
Although, I guess that could have been her….

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COMMENTS (42 Comments)

Anonymous
So I guess the arguing is finally over?
10:42 PM Feb 9th
 
Anonymous
Everyone asks, if dairy is so bad why don't you get out? - guess what folks - I was told today that these milk prices have the possibility of whipping out 25% of all US dairy farms - so they are getting out. In the long run, we are going to go from too much milk to not enough; by 2010 milk prices will surge if not sooner. Some of the people that won't get out that should probably don't have any other options in making income - meaning they have been farming all their life and that's all they know how to do. They don't have degress or phds.
6:49 PM Feb 7th
 

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