So how many cows must be culled to bring supply back in line with demand?
"Using USDA statistics, my guess would be 171,000,” says Michael Swanson, an economist with Wells Fargo's Ag Industry Group. "The math is easy. The assumptions are what will give you the heartburn.”
"At the peak of U.S. dairy exports, about 418,000 cows were being milked to support [those] exports,” he says. USDA has plugged in a 42% decline in exports this fiscal year, and a 1% growth in domestic consumption.
The biggest question is whether the 42% decline in export is on target. Mexico, our biggest buyer, is suffering from a decline in oil revenues, manufacturing exports and tourism. Canada, our next biggest importer, is probably stable but unlikely to increase imports. Exports to Japan are likely to remain stable, but sales to China could be volatile.
"Overall, USDA's 42% export decline represents a middle-of-the-road guess. But export volatility could easily represent $3 to $5/cwt of price volatility in 2009,” Swanson says.
Note that dairy producers are already culling heavier than normal in 2009. In fact, through February, some 525,000 cows were slaughtered in Federally-inspected plants. That's about 50,000 more cows per month than were culled over the past two years. At that rate of accelerated culling, 171,000 more cows could be made into hamburger by mid-June--even without another Cooperatives Working Together cow-retirement program.