Efforts Underway to Urge 'Generous Purchases' of Dairy Products by USDA

January 20, 2009 06:00 PM

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Options for addressing dairy industry woes

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

House Ag Committee Chairman Collin Peterson (D-Minn.) floating letter to urge USDA to buy dairy products. Efforts to address the current dairy situation are being worked on in Washington, with some camps pushing for a repeat of the dairy herd buyout along the lines of the Dairy Termination Program (DTP) that was utilized in 1986 to help bring an exit of dairy producers from the industry.

However, some in the non-dairy cattle industry recall too well the negative impacts the DTP had on their industry.

In testimony to the House Ag Committee in 2001, Wythe Willey, then president-elect of the National Cattlemen's Beef Association (NCBA) detailed the negative impacts to beef cattle industry from the DTP.

"This ill-conceived program flooded the beef market and in short was an unmitigated disaster to the beef industry," Willey testified. "Prices for fed cattle declined nearly $6/cwt. during the first week as futures markets declined by maximum limit moves for three consecutive days then an additional $1/cwt. on the fourth day. Prices for fed cattle remained $5-$7/cwt. below previous year levels for at least 6 months after implementation of the program. Prices for calves and yearling cattle declined by $10 - $15/cwt. as lower prices for fed cattle and general confusion and uncertainty in the marketplace were factored into lower prices paid by feedlots."

Willey said the DTP "cost the beef industry upwards of $1 billion during 1986 and early 1987." Further, he stated, "NCBA and the beef industry learned some valuable lessons in 1986 about the potential impacts and unintended consequences on the beef industry from supply management programs in dairy or other commodities and will not allow a program of this type to ever occur again."

Meanwhile, the dairy industry has continued its efforts via the Cooperatives Working Together (CWT) to remove dairy cattle and thus milk production from the market. In a late-December release, CWT noted they are "currently in the process of removing 184 herds, with 61,000 cows that produced 1.2 billion pounds of milk, through its second herd retirement of 2008. CWT's first herd retirement of the year removed 25,000 cows that produced 430 million pounds of milk. In addition, its export assistance program has helped members sell overseas the equivalent of more than two billion pounds of milk in 2008."

Background: CWT is funded by dairy cooperatives and individual dairy farmers, who are contributing 10 cents per hundredweight assessment on their milk production through December 2008. On Dec. 17, 2008, CWT said it had commitments to keep the program running in 2009.

The interest in Washington on doing something to address the current dairy situation is a sign that this industry-led effort is not apparently making enough of an impact to improve the market situation. And with the undercurrent relative to any dairy buyout option, support is now being sought to urge USDA to make additional buys of dairy products, as evidenced in the following draft letter that Peterson is readying to go to USDA Secretary Tom Vilsack:

The Honorable Tom Vilsack
Secretary of Agriculture
U.S. Department of Agriculture
Washington, D.C. 20250

Dear Mr. Secretary:

A serious imbalance in the domestic dairy industry presents an imminent threat to the economic stability and welfare of American dairy farmers. In spite of industry-led efforts to balance supply, the overall state of the economy has reduced demand for dairy foods, resulting in an estimated 2009 surplus of 6.5 billion pounds.

Exacerbating product surpluses is a price-cost squeeze, with milk prices declining and feed costs rising.  The all-milk price received by farmers averaged $15.90 per hundredweight (cwt.) in December, down more than 25 percent from a year earlier nationwide, and 33 percent lower in California, according to USDA data. Milk prices will likely be considerably below these levels in the coming months in the Northeast, Northwest, Southeast, Upper Midwest, and Southwest as well, if no action is taken.  During the same period, feed costs jumped.  The price of alfalfa, for example, rose 15 percent to $155 per ton.  Feed costs have moderated in recent months, but not enough to offset the drop in milk prices. 

Simultaneous to low prices and the national economic recession, federal feeding and nutrition programs are at record-high enrollments.  As you know, more than 31 million people qualified for benefits under the Supplemental Nutrition Assistance Program (SNAP) in the latter part of 2008.  In addition, free and reduced-price school lunch program participation is an unprecedented 18.4 million children. 

In light of the disturbing evidence, and consistent with the authority granted the Secretary under Section 5 of the Commodity Credit Corporation Charter Act and Section 32 of the act of August 24, 1935 (P.L. 74-320 as amended), we respectfully urge you make generous purchases of dairy products as soon as possible for use in federal nutrition programs.  As we work to address long-term solutions to overproduction, your quick action to remove surpluses from the market is critical to ease the immediate crisis and continue to provide wholesome and nutritious products for school children, the elderly and others in need.

Thank you for your prompt attention and consideration of this request.

Comments: It would seem that the groundswell of opposition that would erupt if a government-run dairy herd buyout was proposed has pre-empted such a move. Hence, the focus by Peterson and likely other lawmakers on getting USDA to do something like purchasing dairy products to try and address current market imbalances.

As one contact noted, "Supply control programs don't work. Hopefully we've learned that painful lesson via DTP and other efforts which have only served to create market disruptions that have proved costly to U.S. agriculture."

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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