USDA will offer to purchase another $20 million in cheese early next year after the first offer fell far short of its target.
Meeting with dairy farmers in LaCrosse, Wisconsin on Oct. 11, U.S. Secretary of Agriculture Tom Vilsack said the USDA will soon begin soliciting bids to buy cheese, with deliveries to food banks and other food assistance recipients expected to occur beginning in March 2017.
The government cheese purchases – authorized under Section 32 of the Agriculture Act of 1935 – are designed to reduce a private cheese surplus while assisting food banks and other food assistance recipients.
"America's farming families are being called on to demonstrate their world-famous resourcefulness and resilience in the face of this current market downturn, and USDA is making use of every tool that we have to help them," Vilsack said.
The USDA originally announced an offer to buy $20 million of cheese – estimated to cover about 11 million pounds – on Aug. 23. However, only three companies offered cheese in the Sept. 9-22 bidding period. The USDA announced purchases of 3.4 million pounds of shredded cheddar cheese at a total cost of $7.1 million on Sept. 29.
The cheese will be delivered to food banks across the country between November 2016 and March 2017. Companies with accepted bids include:
• Associated Milk Producers Inc.: 768,000 pounds with a range of $1.9575-$2.05 per pound, for a total of $1.54 million,
• Dairy Farmers of America: 384,000 pounds with a range of $1.9825-$2.0175 per pound, for a total of for $767,328 and
• Masters Gallery Foods (a cheese broker): 2.25 million pounds with a range of $2.0101-$2.4624 per pound, for a total of $4.84 million.
Unfilled offers
The USDA’s unfilled offers left about 8.1 million pounds of cheese in storage and about $12.9 million in fiscal year 2016 spending on the table. Fiscal year 2016 ended on Sept. 30, 2016, and the new USDA offer falls under the fiscal year 2017 budget.
The USDA’s latest Cold Storage report, released Sept. 22, indicated there were more than 1.2 billion pounds of natural cheese in warehouses as of Aug. 31. Of that total, nearly 745 million pounds were American cheese, including cheddar.
However, the disappointing purchases under the original USDA offer led one dairy producer group to question whether there really is a cheese surplus, given that the USDA purchased the cheese at more than $2 per pound at a time Chicago Mercantile Exchange cash and futures prices for cheese were substantially lower.
CDC: Expand the toolbox
While expressing appreciation for the USDA's efforts to buy cheese, Lynne McBride, executive director of the California Dairy Campaign (CDC), called on Congress and the USDA to address the current dairy crisis with the same tools it had in 2009, including direct aid to dairy farmers.
“Our main concern is the limited authority that the USDA secretary has to respond to the ongoing dairy crisis,” McBride said. “In the short term we are calling on Congress to take action to enable USDA to provide direct relief to dairy farmers through the Section 32 program. In the long term, we are calling for comprehensive reform of federal dairy programs to provide an effective safety net when milk prices are well below production costs as they are today.”
McBride said the current federal safety net, the Margin Protection Program for Dairy (MPP-Dairy), is ineffective and has lost the confidence of dairy producers. Only 38 Californian dairy producers purchased “buy-up” coverage under the program in 2016. The enrollment period for the 2017 MPP-Dairy program closes Dec. 16, 2016.
McBride said 53 Californian dairies had gone out of business during the first five months of 2016, with “more likely to close due to mounting financial losses caused by chronically low milk prices.”
CDC is part of a nationwide effort calling on Congress to give the USDA more authority, McBride said. During the 2009 dairy crisis, the USDA purchased $60 million in dairy products for domestic feeding programs, spent $290 million in direct relief to dairy farmers, and provided more than $1 billion through the Milk Income Loss Contract (MILC) program, the Dairy Product Support Program (DPPSP) and the Dairy Export Incentive Program (DEIP).
“During this dairy crisis far less has been done to provide relief to dairy farmers,” McBride said.
NMPF: Changes needed to MPP-Dairy
“USDA’s announcement offering to purchase up to $20 million of cheese will provide assistance to America’s dairy farmers through increased demand for milk, while also serving the needs of Americans who patronize food banks and other charitable assistance organizations,” said Jim Mulhern, president and chief executive officer of the National Milk Producers Federation (NMPF).
“We continue to look at ways to address the challenging economic situation facing dairy farmers, and are appreciative of USDA’s efforts to improve the effectiveness of the dairy Margin Protection Program established in the 2014 farm bill,” Mulhern continued. “Further changes are needed to improve the program as an effective safety net, but such changes go beyond the authority granted to USDA by Congress. We will continue working with Congressional leaders to seek improvements to MPP.”
USDA anticipates price recovery
The USDA projects dairy prices will increase throughout the rest of the year. However, many factors have contributed to a sluggish marketplace for dairy producers and caused dairy revenues to drop 35 percent over the past two years. Those factors include low world market prices, increased milk supplies and inventories and slower demand.
“While our analysis predicts the market will improve for these hardworking men and women, reducing the surplus can give them extra reassurance while also filling demand at food banks and other organizations that help our nation's families in need,” Vilsack said.
Vilsack: Trade deal part of recovery
Vilsack also shared details of a new report by the USDA's Office of the Chief Economist, which shows continued growth of the U.S. dairy sector is largely contingent on trade, and that the Trans-Pacific Partnership could create an additional $150 to $300 million in annual U.S. dairy exports.
According to the report, free trade agreements have contributed to the growth in U.S. dairy exports and helped to address tariff and nontariff barriers that disadvantage U.S. products in overseas markets. U.S. dairy exports to free trade agreement partners grew from $690 million in the year prior to each agreement's entry into force to $2.8 billion in 2015, driven by lower trade barriers and increased U.S. competitiveness. 
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