In an announcement this afternoon, Cooperative Working Together (CWT) program officials say they received a verbal commitment from members to make the program a two-year program. But they declined to announce another much anticipated "herd buyout.
Jerry Kozak, president and CEO of the National Milk Producers Federation, which manages CWT, says CWT will not disclose precise dates or targets for removing milk or cows. "There's been a huge amount of baseless speculation on what CWT will do in 2009,” he says. Kozak also emphasizes CWT has not sought government financial assistance to help fund CWT.
But the announcement made today, extending the program over two years, will go along way in collateralizing a major herd buyout this year. Kozak notes that a "prominent agricultural lender” will provide CWT a line of credit tied to the level of funding CWT members are committing to invest in CWT over the next two years.
Some quick aggie math, based on previous CWT herd retirements, suggests each 100,000 cows removed by the program takes about $100 million to fund, based on an average bid of $5/cwt and 20,000 lb/cow production. A 300,000-cow removal program would thus take about $300 million.
At a 70% participation rate, the CWT generates about $130 million annually. But not all of those assessments can be used for herd removal, since CWT also provides export assistance for cheese, butter and powder. To take large numbers of cows out of production, CWT requires a multi-year commitment.
While CWT has received verbal commitments for two-year participation, some of the cooperatives must now go back to their membership to get approval for two years. "We operate on documents, not verbal agreements,” says Chris Galen, NMPF spokesperson. So it could take some times—likely weeks, not months—to get those agreements in place.
The decision to fund CWT for another two years is predicated on achieving a 67% supermajority of the nation's milk supply at 10¢/cwt membership assessment.
"Given where milk prices are compared to the cost of production, I believe we are in a position to remove a significant amount of oversupply in the future,” says Kozak. "But we will continue to be careful stewards of our resources. We are not going to squander money to meet someone else's arbitrary expectations of what CWT should do.”
In a change to the program, CWT will now require any dairy operation whick has a bid accepted in future herd retirements to agree and warrant to cease dairy production for one year. The warranty will apply to both the producer and the facility.
In addition, dairy producers who participated in a previous herd retirement and have resumed operations will be permitted to bid in the next round.