First dairy buyout of 2010 announced

May 28, 2010
by WLJ

Last week, the dairy group Cooperatives Working Together (CWT) announced a new round of dairy herd retirements with an immediate sign-up period starting last Friday and running through June 25. The program is expected to send cull dairy cattle to slaughter from July to early August, a time of seasonally low beef cow slaughter. As a result, the market impact on beef producers is expected to be minimal unless significant drought occurs, forcing cattle producers to sell during that time period.

“It is our belief that a herd retirement at this time will add to the positive momentum already building and should result in speeding up the milk price recovery already in progress,” said Jerry Kozak, president and CEO of National Milk Producers Federation, which manages CWT.

This is the tenth herd retirement since 2003.

“With beef prices very strong, and replacement cow and springer prices still relatively low, CWT has determined that it will consider bids up to, but not to exceed, $3.75 per hundredweight,” noted Kozak. “However, there is no guarantee that a producer who bids at the maximum level will be selected.”

Livestock Marketing Information Center Director Jim Robb said the buyout seeks to capitalize on the high cull cow prices in the U.S. which will cut the costs associated with the buyout and encourage greater participation. Dairy producers who participate in the buyout are allowed to keep the proceeds from cull cow sales.

As was the case in the 2009 herd retirement rounds, CWT has no set target for the volume of milk or the number of cows to be removed in this herd retirement.

“Whether CWT will remove a significant number of dairy animals will depend on the number of bids received and the price level of those bids. CWT will not pay more for cows than what they are currently worth in the marketplace,” Kozak said.

In 2010, participating farmers will not have the option of offering bred heifers. In addition, two significant program rules remain unchanged from 2009: Members of CWT whose bids were accepted in a previous CWT herd retirement may not bid in this round; and Producers whose bids are accepted will be paid in two installments: 90 percent of the bid amount multiplied by the producer’s 12 months of milk production when it is verified that all cows have gone to slaughter, and the remaining 10 percent plus interest at the end of 12 months following the farm audit if both the producer and his dairy facility—whether owned or leased—do not become involved in the commercial production and marketing of milk during that period.

Robb noted that dairy producers have not benefitted from the price advances enjoyed by nearly all other commodities over the past several months and are still at or near breakeven levels in most cases, which has prompted this most recent buyout announcement. Robb said the buyout is likely to be relatively small in terms of cow numbers and overall impact on the industry. — WLJ