Livestock Market Comments
David P. Anderson
Professor and Extension Economist
Livestock and Food Products Marketing
Dairy Buyout Announced
May 14, 2009 - PDF version
The Cooperatives Working Together (CWT) announced their bid acceptances for the latest herd buyouts this week. The deadline to have bids postmarked was May 1. CWT accepted 388 out of 538 bids, for almost 103,000 cows. The total milk production from those operations with accepted bids is about 2 billion pounds.
Time Line
Each operation with an accepted bid will be visited by an auditor. Those audits are supposed to start next week. After audit the cows are to go to market within 15 days. The auditing process is expected to be finished in early July. It is reasonable to expect that CWT bid dairy cows will begin going to slaughter towards the end of May. This culling should continue into early August. This means that an additional 10,000 cows will head slaughter per week over that 10 week period from the end of May to early August.
Impact
Dairy cow slaughter declined dramatically over the last few months from the beginning of the year. Some of the increased slaughter early in 2009 was due to the last CWT buyout in late 2008. Some of the rest of the culling was due to dairies quickly culling the “easy marks” as milk prices declined. It is reasonable to believe that dairy cow slaughter declined in March and April as producers tried to hold on until the CWT buyout program began to accept bids.
Dairy cow slaughter should increase due to CWT and increase even more as producers are forced to cull deeper due to financial losses. Dairy cow slaughter normally reaches its seasonal low in June and July.
Beef cow slaughter has been below year ago levels for about 2 months. It normally hits its seasonal low in February-March. Beef cow slaughter has started to climb in recent weeks, but remains below a year ago. Beef cow slaughter should remain below a year ago’s levels due to a smaller cow herd and if range and pasture conditions remain in good condition (a Big If!).
The combination of fewer beef cows and more dairy cows may leave total cow slaughter above a year ago. But total slaughter numbers should not overwhelm packing capacity.
Is it Enough?
The extent of the financial disaster in the dairy industry would suggest that 100,000 cows culled through CWT is not enough of a total herd reduction, by itself, to balance supply and demand. This CWT round represents the biggest buyout that they have funded and they have the resources to conduct another round of buyouts, if necessary.
More important, is it enough on the milk side. Milk production in 2008 totaled, a record, 189.6 billion pounds. If this buyout reduces milk production by 2 billion pounds, then 2009 milk production will be the second largest on record. A simple average of the number of cows and pounds of milk purchased works out to about 19,400 pounds of milk per cow, which is below the annual average production per cow by about 1,000 pounds. The history of supply controls in dairy policy indicates that the price effects are short lived, at best. Given the state of the economy, the losses in the industry, and trade conditions, it is reasonable to expect further liquidation will be necessary, whether from CWT or the market working.
