Sunday, April 26, 2009

CWT Program is out of Sync with the Times

Cooperative Working Together (CWT) is working hard to try to improve the low milk pay situation by altering the supply and demand factors. In this post, we'll examine their programs to see what might be expected.

Because this post is largely critical of the CWT efforts, a copy of this blog is being forwarded to their office in case they would like to add comments expressing their differing opinions.

In many of the earlier posts (April 7 & 23 posts), we discussed the relationship between cheese prices and milk prices. The relationship is very tight.

We've also demonstrated that the cheese price is primarily linked to imports which are heavily influenced by exchange rates (April 13 post).

The current policy of CWT is to influence the U.S. milk supply through herd retirements. They are, for now, abandoning their efforts to influence exports. Quoting from the CWT website, "the export program will not be utilized in 2009". By the way, New Zealand's leading dairy publication is "Dairy Exporter".

It certainly appears that the CWT has missed the real issues in two ways:

  1. Can they really have a lasting influence on milk supply through herd retirements? When there are profits in the U.S. dairy industry, cow numbers will increase. When there are no profits, cow numbers will decline. Any external attempt to artificially alter this relationship will have a very short term influence.

  2. Herd retirements do not address the real issue of milk pricing volatility - imports of commodity cheeses. The key here is global cheese supply and currency rate fluctuations. A temporary decline in the number of cows in the U.S. has a negligible impact on the real factors at work globally. CWT has failed to recognize that the real threat to the U.S. dairy industry is global, not domestic. (If we want to spend money on herd retirements, the money should be used to retire herds in New Zealand, not the U.S.!)

While there are serious issues on milk pricing in the U.S., the current CWT effort - which was developed by some very knowledgeable people sure seems to not address the real issues. Producers need every cent to survive the current situation. It is not a time to waste any desperately needed funds.

Let's see if there is a rebuttal. I encourage CWT to post a comment refuting these facts.

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