Cheese manufacturers and brokers showed little interest in USDA’s offer to buy surplus cheese at a significantly higher price than cash markets.
In late August, USDA announced it would spend $20 million for approximately 11 million pounds of cheese to assist ailing dairy farmers and aid food banks and pantries.
But there were only three takers in the Sept. 9-22 bidding period, resulting in USDA purchasing 3.4 million pounds for $7.1 million at an average price of $2.10 per pound.
Associated Milk Producers sold 768,000 pounds for $1.5 million, Dairy Farmers of America sold 384,000 pounds for $767,328 and broker Masters Gallery Foods sold 2.25 million pounds for $4.84 million. Bids ranged from $1.96 to $2.46 per pound.
The disappointing response left $13 million on the table, and that money’s gone because the federal government’s fiscal year has ended and those funds went back into the U.S. Treasury, said Lynne McBride, executive director of California Dairy Campaign.
It’s unfortunate the full $20 million could not have been used for donation and to help dairymen, she said.
But it also begs the question of whether there really is a surplus of cheese if USDA couldn’t buy cheese at a price well above the CME spot price, which was about $1.57 a pound during that time, she said.
The lack of response makes it evident the decision to purchase cheese failed to meet expectations, she said.
On Tuesday, however, USDA announced it will soon offer another solicitation to purchase $20 million of cheddar cheese to reduce cheese surpluses that have reached record levels.
CDC would prefer direct assistance to dairy farmers and continues to call on Congress and USDA to provide direct relief to dairymen, who have been struggling with low milk prices, she said.
“We continue to see dairies in California close. We’re really disappointed by the lack of response to this in Washington,” she said.
In the first five months of the year, 53 dairies have gone out of business, and more are likely to close due to mounting financial problems, she said.
The situation is every bit as bad as the 2009 crisis, and the rate of closures is faster.
Yet assistance to dairy farmers pales by comparison. In response to the 2009 downturn, USDA purchased $60 million in dairy products for domestic food programs and spent more than $290 million in direct relief to dairy farmers, she said.
It also spent more than $1 billion through the Milk Income Loss Contract, the Dairy Product Support Program — both now defunct — and the Dairy Export Incentive Program, she said.
The agency did recently announce $11.2 million in indemnity payments through the Margin Protection Program, “but dairymen had to pay premiums to get that,” she said.
California producers are facing a cost of production of nearly $18 per hundredweight of milk (including return on investment and management), and the overbase milk price in August was around $15 per hundredweight, she said.
There needs to be comprehensive reform of the safety net in the next farm bill, she said.