USDA Dairy Purchase Announcement is Certainly No Bailout as Some Charge

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Some reports writing about USDA’s plans to buy $20 million of stockpiled cheese called it a “bailout” for the dairy industry. In this day of hyped news and little and often errant analysis, the bailout statement is still oh so wrong. The purchase of about 11 million pounds of cheese is only 1 percent of the inventory built up. A bailout? No. It is a copout in “analysis”.

Further, the purchase announcement was much lower than dairy-state lawmakers and dairy lobbyists urged (90 million pounds). A dairy lobbying group had asked for as much $150 million in cheese purchases.

Perspective on the purchase announcement. At 11 million pounds the impact is almost nothing (except good will with the voters). Stocks are at a record high, up 115 million pounds above last year. Even if you just look at the trade flows, monthly exports have averaged 13 million pounds lower than last year during 2016, so the government purchase almost makes up for the one month of weak exports.

Vilsack provides perspective. “We understand that the nation’s dairy producers are experiencing challenges due to market conditions and that food banks continue to see strong demand for assistance,” USDA Secretary Tom Vilsack said in a statement.

Reasons for purchase. “While USDA projects dairy prices to increase throughout the rest of the year, many factors including low world market prices, increased milk supplies and inventories, and slower demand have contributed to the sluggish marketplace for dairy producers,” USDA said.

USDA also said it would monitor the situation and take additional actions, if needed, later this fall. Now remember that statement because some dairy industry analysts and traders previously thought USDA would not announce any purchase program. When we were asked the question it did not take us long to say, yes purchases will be made, especially in an election year. It’s happened before. Now it’s happened again. Of course upcoming elections were not the only reason for the pressure and announcement.

Some traders and analysts typically say they don’t follow policy. But they become interested when it may impact markets or adjust some bottom lines for an industry. While this is a meager purchase, as USDA noted, there could be more ahead. But it will take a lot more to get the label “bailout” for the dairy industry. This is no auto industry bailout. (Yes, yes that bailout worked out, so please no emails on that topic.)

Meanwhile, USDA also announced it is extending the deadline for dairy producers to enroll in the Margin Protection Program (MPP) for Dairy to December 16, 2016, from the previous deadline of September 30. That, too, should have been widely expected by anyone following dairy policy.

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