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0907 PD: Continual erosion of future Class III milk prices

Gary Genske Published on 31 August 2007

Editor’s note: The author sent the following letter on July 27, 2007, to Cooperatives Working Together’s (CWT) CEO Jim Tillison. As of August 21, the author had not received a reply from Tillison.


We have met a few times over the last 20 so years, but have never worked together on any dairy program. To introduce myself, I am the managing partner of our CPA firm whose clients produce over 10 percent of the milk in 27 states. I am also owner of two 2,000+ milking dairy farms that pay about $9,500 per month to the CWT program.

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Our firm’s 16 partners routinely talk to dairy producers all over the country. There seems to be a considerable concern over how the CWT assessment is spent. The export assistance program, as reported by DFA Today July 8, 2007, reported that almost 39 million pounds of milk products have been subsidized through the CWT program in the first six months of 2007, whereas only 40 million pounds were subsidized in all of 2006. In addition, another $15 million has been allocated from the CWT fund to subsidize export assistance for the balance of 2007.

Most dairymen we work with do not have a problem with subsidizing some exports, but they would, by far, prefer to have the CWT funds spent on ways to keep milk supply and demand in balance, and deter milk production, instead of subsidizing removal of surplus production.

We all have seen the Class III milk futures go down for all future months by about 70 cents per hundredweight over the last seven weeks. The country’s milk production is up 1.1 percent this year with a national cow population of about 9,120,000 cows. The national dairy replacement heifer population is up over 300,000 head in the last three years, and with sexed-semen’s popularity, the heifer population will continue to grow at a more rapid pace. Milk production, per cow, continues to increase at about 1+ percent per year.

With so many pointing at future increased production, we look at the CWT and co-op leadership to be ahead of the curve on potential milk production surplus problem as it relates to producer pay prices. We have seen the graphs produced in trade publications which indicate that a national dairy cow population in excess of 9,050,000 cows results in surplus production which in turn reduces producer pay prices. The CWT program can and should help control this national cow population.

I have been made aware of the fact that the CWT currently collects about $9 million to $9.5 million per month. Since the last (April 2007) herd retirement program retired about 52,000 cows at an estimated cost of $50 million, the CWT program could or should have some form of a herd retirement or buyout about every six months.

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Dairymen are expecting their CWT funds to be used primarily for helping sustain a higher producer pay price or to get their fair share of the existing retail dollar. We hope this message is received and strongly considered before any more of the CWT funds are directed at anything other than production control. PD

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