As a result of our just-completed herd retirement program and recently increased activity under our export assistance program, we have received inquiries from a few producer-members asking about the overall operation of the CWT program. Rather than respond to these inquiries individually, I felt all CWT members would be interested in the nature of the questions and our responses.

Question: In the most recent herd retirement, CWT selected more than 200 bids covering 26,000 cows that produced a half billion pounds of milk. Why weren’t more bids selected?

CWT: With each round of a CWT herd retirement program, our staff economists conduct a nationwide survey of the cost of replacement cows in the marketplace. From the data collected, a maximum replacement cow value is established. Based on this dollar amount, CWT management then determines the maximum bid per 100 pounds of milk that should be accepted in the program.

This same methodology has been employed by our program since its inception and has served not only to maximize the effectiveness of the available funding but also to establish a sound basis for acceptance of bids should CWT be challenged legally by those whose bids were not accepted.

All of the bids selected in this most recent herd retirement were less than or equal to the established maximum bid level, and all had consistent milk production on a month-to-month basis indicating the cows we removed had, in fact, produced the milk on which the bid was based.

At a time of relatively high dairy prices, and the large measure of media attention given to rising food prices in general, it would have been imprudent for us to overreach in accepting bids that were beyond our well-researched maximum level. To date, we believe our methodology and strategic initiatives have enabled CWT to avoid any negative media attention during the most recent herd retirement program.

Question: It is my understanding that even after the latest herd retirement, CWT has significant funds left. What will happen to that money?

CWT: In establishing the 2008 budget, the CWT Committee allocated $30 million for the export assistance program and approximately $168 million for herd retirements. After the selected herds have been retired and the farmers reimbursed, we will release information concerning the total expenditure for this recent herd retirement program.

During the remainder of 2008, CWT will continue to monitor the same dairy economic factors – milk prices, cost of production, cow culling rates, etc. – that led to the decision to initiate a herd retirement round back in June.

Should the farm economics indicate that another round of herd retirements should be initiated again this year, we will have sufficient funding to conduct another one.

Question: Why not use all the money for herd retirements instead of having an export assistance program? What benefit is an export assistance program to dairy farmers?

CWT: Since its beginning, the CWT Committee, made up primarily of dairy farmers, has wanted the program to be multi-dimensional. That is why CWT operates both its herd retirement and export assistance programs.

According to an independent analysis of our programs, the export assistance program has returned $570 million to dairy farmers through 2007 at a cost of $46.9 million. In other words, every producer dollar ($1) invested in assisting member cooperatives make export sales returned $12.15 to dairy farmers.

Last year, approximately 10 percent of U.S. milk production went into exports. This development contributed heavily to overall higher producer milk prices. Our industry is now in a different paradigm, however, in which loss of export sales could negatively impact producer pay prices. It is apparent to almost every economic analyst that the export area is critical to producer well-being.

Question: What about repeat business and the long-term business prospects of CWT’s export assistance program?

CWT: Since 2003, our export assistance program has helped member cooperatives to export 10 million pounds of whole milk powder, 29 milk pounds of butter oil, 39 million pounds of cheese and 71 million pounds of butter. This year alone the milk equivalent of what CWT has helped export is more than 1 billion pounds. That is equal to the production of 50,000 cows.

And much of that business is repeat business. CWT has assisted members to make 44 sales (6.4 million pounds of cheese) to Japan and 161 sales (9 million pounds of cheese) to South Korea. It has helped them to export repeat sales of butter and butter oil to Mexico (30 sales totaling 19.6 million pounds) and Egypt (20 sales totaling 5.1 million pounds).

This, of course, does not include the tens of millions of pounds of dairy products that members were able to export between July 2007 and June 2008 when they needed no CWT export assistance to make sales overseas.

For the long-term, the CWT Committee has approved an export assistance strategic business plan that was developed in conjunction with the U.S. Dairy Export Council (USDEC). The purpose of that plan is the development of sustainable export markets for U.S. cheese, butterfat and whole milk powder without our assistance.

Question: What are CWT’s plans for the future?

CWT: During August 18th and 19th, three CWT task forces met to review past program activities and make recommendations to the CWT Committee for future activities. The herd retirement task force is made up solely of dairy farmers, and the export assistance task force includes both dairy farmers and member cooperative staff who work in the international sales arena. The strategic planning task force will be looking at what other actions we should be taking to carry out our mission of providing price stability and good returns to dairy farmers and cooperative members.

The CWT is governed and administered by the dairy producers and cooperatives that contribute to the program. The CWT Committee, through its specialized task forces, establishes the rules governing the program, and the committee also provides advice and counsel to CWT management in executing the individual component programs.

It is our members that establish the basic precepts by which the program operates – their overriding mantra from the inception of the program has been “remove the most amount of milk at the least amount of cost.”

We will continue to operate the CWT program with integrity, credibility and fiscal responsibility, because it is our responsibility to utilize producer and co-op funds in the most cost-effective manner to achieve the desired results.

I hope this helps CWT’s dairy farmer investors gain a better understanding of how and why we operate. PD

—Submitted by CWT

Jim Tillison, Chief Operating Officer, Cooperatives Working Together (CWT)