Dairy Excel: Will there be supply management?

With milk prices now at record lows for over 18 months, there are many proposals out there on how to improve the price. Will you take part in a nation wide supply management program?

You may have an opportunity to make that decision some time this summer.

The National Milk Producers Federation has formed the Cooperatives Working Together, a multi-dimensional, farmer-led and farmer-funded national program to address the supply and demand imbalances that are depressing milk prices.

The program’s objective is to reduce the national milk supply by 2.7 percent or roughly 4.6 billion pounds.

It plans on doing this through export of dairy products and reduced output at the farm level.

Three phases. The plan will attack the supply and demand balance with a 3-phase approach.

An important factor in controlling production is the size of the nation’s dairy herd. The cooperative group will fund a program to purchase whole herds of dairy cattle.

Under the herd retirement program, CWT will call for bids for the buyout of whole herds (milking and dry cows only). The applying farm will be audited and when accepted will take possession of the animals and commit them to slaughter.

There is no requirement to keep farmers out of future dairy production.

Another important on farm factor is to reduce farm level production. The program will allow a farmer to contract with CWT to reduce their future marketings by specific percentage.

A producer will offer a bid indicating the payment, in dollars per hundredweight, they would be willing to receive to reduce their production marketings by a specified percentage (at least 10 percent) and also how they intend to achieve the reduction for a 12-month period.

If part of the agreement to reduce production includes selling cows they must go to slaughter.

Marketing reductions will be based from the previous 12-month base period.

Demand issue. The third phase of the plan is to attack the demand issue. The program will address the problem of too much manufactured product (butter, power and cheese) by providing an incentive to dairy manufacturers and exporters to sell these products to foreign commercial markets.

The cooperative group will again use a bid system, awarding the export price assistance and verifying the results of the exports. It will not take ownership of the product and will work independent of the U.S. government’s Dairy Export Incentive Program.

In order for the program to fly, the milk producers’ board said they need 80 percent of the milk in the U.S. agreeing to take part. That means more milk than what the cooperative members of federation control.

As independent producers, you will have to take part for this to be put into action. Even co-op members could option not to take part.

Some homework. Your decision to take part in one of the producer phases of the program will require you to do some homework.

If you are close to retirement or have been thinking about getting out of milking cows anyway, then the herd retirement program may be an easy decision.

The reduced production-marketing program will take some pencil pushing to make that decision.

You first must be a paying participant (18 cents per hundredweight deduction) into the program. You then will need to determine how the potential reduced cash flow will affect the profitability of your business.

Will the reduction in total milk production and increased exports be enough to increase farm milk prices to offset reduced marketings? That probably is an unknown and something you need to be aware of.

Figure it out. Now you know why we have constantly hounded you into determining your cost of producing a hundredweight of milk.

I am sure that some Extension economists will devise a worksheet that you can use to determine your potential participation.

In the meantime, watch for meetings in the area that might help to further explain the program and help you determine your participation.

The National Milk Producers Federation board will meet again at the end of June to determine if they have enough percentage of milk to launch the program.

(The author is a dairy agent for OSU Extension in Wayne County. Questions or comments can be sent in care of Farm and Dairy, P.O. Box 38, Salem, OH 44460.)

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