The Holsteins Are Coming
Apr 06, 2009
By Steve Cornett
It looks like the dairymen are going to dump a bunch of their cows onto the beef market this late spring and early summer, whether cowboys like it or not.
Maybe it will be ok. It looks like the cows will come at a time when cow kills are seasonally low. But they may come pretty quickly once they start in early May and there may be a lot of them. Nobody really knows.
But, as we said, there’s not much beef producers can do about it. The government isn’t involved this time. This is between the dairymen themselves, employing a self-financed herd reduction plan they hope will reduce the supply of milk enough to return the industry to profitability.
It’s a program that most cattle producers know little about. They call it Cooperatives Working Together. Since 2003, most dairy cooperative members have been paying 10 cents per hundredweight of milk—something like $10 million per month—into the program, administered by the National Milk Producers Federation. The idea is to use the money in an attempt to help balance supply and demand of milk.
I’m not offering any personal opinions here. The concept of a self-funded retirement program strikes me as a bit novel. However, you’ve got to wonder if the promise of program like this—which has been forecast for months—might not interfere a little bit with the fluid movement of the market. I mean, if it were me, I can see me holding on a little longer in hopes the bailout would come. But if you’ll head off the CWT Web site mentioned below, you’ll find dairy farmers like it.
They use the money two ways. CWT funds go toward subsidizing exports on the theory that milk that moves offshore will not add to domestic oversupply. But of more interest to cattle producers at the moment, the money can also be used to fund dairy liquidation programs—and it was just such a program the CWT announced last week.
It works like this, assuming a beef guy can be trusted to understand and then explain anything about the dairy business. A dairy farmer—perhaps in financial trouble, perhaps old and/or tired of dairy farming—bids into the program. He agrees to have his cows slaughtered and stay out of the dairy business for a year. He gets the value of the cows, but he also bids to get the CWT to pay him some extra. He has to sell all his cows, not just a few of the culls. (They are also paying $700 per head for bred heifers.)
At least that’s the way Chris Galen, the NMPF’s head flak and top Agweb blogger explained it to this reporter, I think.
Chris says nobody knows how many cattle will be bid into the program. He thinks that, given the dire economic straits facing dairymen, that interest will be very high and, with current cow prices, he expects the CWT’s funding will stretch further than it has in past buyouts.
And, there is some comfort in knowing there have been several such buyouts since 2003. Six, in fact. And Chris was a bit bemused when this column chose to make “a big deal” out of the possibility of a government-sponsored buyout earlier this year. After all, the earlier buyouts—the official CWT term is “herd retirement” program—came and went without cattle people noticing any detrimental effect on beef prices.
With any luck, that may happen again this time. However, that depends on how fast the cows come, how many of them come and what sort of cattle market they hit. It is good, however, that this won’t be a surprise. That may have been what caused so much damage and so many hard feelings after the 1986 buyout. Well, that and the fact the government, not dairy farmers, funded that one.
Anyhow, CWT doesn’t know how deep this will go. You can read Chris’ blog to get a feeling of what dairy farmers think. Some of them think a ton of cows will go.
Chris says that once the bids are opened, the winning producers will be notified beginning shortly after May 1. Fortunately for the market, each producer will be contacted personally by a fieldman, and that will force the process to proceed for several weeks. Chris says the liquidation might take 6 to 8 weeks.
So it probably wouldn’t be real prudent to plan on marketing a bunch of cull cows during May or June. With any luck, the rains will fall on cow country and we’ll all be possessed by grass fever about then and the dairy cows can just go to town by themselves. If last week’s market is any indication, it feels like fed cattle prices may be getting some footing under them. So maybe we can ease into and out of a bunch of dairy cows without getting into a 1986-style wreck.
But that’s just “maybe.” If packers are suddenly asked to kill thousands and thousands of fresh dairy cows in a few weeks, May could be nasty. But the dairymen who run the CWT program know that, obviously. They have the flexibility to bring the cattle slower if they see too many coming. They don’t need the market to crash, either. So if they’ll play it cool, maybe this time the dairy buyout can help dairy farmers without hurting their fellow cattlemen too much.
You can learn much more, including information on earlier herd retirement program's at the CWT website or by having a look at the blogs of either Chris Galen or Dairy Today editor Jim Dickrell at www.agweb.com.
Steve Cornett is editor emeritus at Beef Today. You can reach him via e-mail at firstname.lastname@example.org.
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