SALEM, Ohio – Just six months and 2,400 bids later, herd buyouts and voluntary drops in milk production are a reality.
By attacking the supply side of the market, farmers are trying their best to add a few more dollars to their milk checks.
Twenty-four hundred farmers sent bids to Cooperatives Working Together last month – estimating what they would charge for a herd buyout or to reduce their milk production by 10 percent to 50 percent.
Since bidding closed Aug. 22, auditors have been busy ranking offers by who will take the lowest dollar for production cuts.
Producers should start being notified this month, said National Milk Producers Federation spokesman Chris Galen.
Local producers. Although there’s no telling how many Ohio and Pennsylvania farmers submitted bids until the farmers themselves are notified, it is not likely many local bids will be accepted.
The United States is divided into five regions: Northeast, Southeast, Upper Midwest, Southwest and West. Steps were taken to be sure milk production isn’t pulled out of areas with an already flat or declining dairy industry, Galen said.
This means in the Northeast, Southeast and Upper Midwest regions, no more than half a percent of the annual milk production is eligible for the program. Ohio falls in the Upper Midwest region and Pennsylvania in Northeast.
Significantly more milk output will be eligible in the West and Southwest.
Galen said all the bids will not be accepted – just until the goals of approximately 36,100 cows are retired and until voluntary drops in production hit 120 million pounds.
The way it works. CWT’s goal is to reduce the nation’s milk production by 1.2 billion pounds, or .7 percent, in a 12-month period.
Three programs aim to reduce the amount of milk:
1. Farmers are paid to reduce their milk production.
2. Farmers are paid to sell their herds to slaughter, removing cows from milk production.
3. Dairy manufacturers and exporters are paid to sell dairy products to foreign commercial markets. The goal is to export approximately 40 million pounds of butter and cheese.
Assessment. Thirty-seven member co-ops pledged full participation. Farmers in these co-ops are automatically assessed 5 cents per hundredweight, which goes to the CWT program. From this assessment, approximately $60 million will be raised in the next year.
This $60 million will then be paid to the farmers whose bids were approved for a drop in production or herd retirement.
The idea is for farmers to give a nickel with a 400-percent return investment, Galen said.
Even after factoring the assessment cost and lower government Milk Income Loss Contract payments, all-milk prices are targeted to increase by 23 cents a hundredweight.
Regardless of participation, the increase should be in all farmers’ milk checks.
After the program’s initial year, National Milk Producers Federation and CWT members will decide whether to continue the program, Galen said.
Getting started. Selected bidders for reduced production will be notified mid-September, and they will start decreasing their milk output Oct. 1.
Farmers whose bids are accepted for the herd buyout program will be notified on a rolling basis, Galen said. Field auditors will visit each farm and tag the herd for removal. The process should take about six weeks.
Farmers keep proceeds from slaughter, in addition to their CWT payment.
“These programs will focus on retiring cows, not farmers,” says CWT’s Web site (www.cwt.coop/), meaning farmers won’t be stopped from future dairy production.
Dire need for help. The program was conceptualized during a period when milk prices were particularly low and farmers were desperate for a solution, said Penn State ag economist Ken Bailey.
But the recent increase in prices may have influenced farmers making bids, Bailey said. The situation did not look as grim in August as it did in April, meaning some farmers may not have placed bids.
Bailey points out, however, he doesn’t expect the recent higher prices to last beyond October.
Although some producers may not have placed bids because of better prices, Galen said 2,400 bids is a good number to work with.
“It’s a sufficient number to pick and choose from,” he said.
Another version. The program, first mentioned publicly in March, changed this summer, when lagging interest forced the assessment to be dropped from 18 cents to 5 cents.
Initially, the program aimed to pare milk production by 4.6 billion pounds, about four times as much as the program’s current version.
(Reporter Kristy Hebert welcomes reader feedback by phone at 1-800-837-3419, ext. 23, or by e-mail at khebert@farmanddairy.com.)
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