How Many Cows Will CWT Kill?

By Jim Dickrell

Now, it’s a waiting game. Cooperatives Working Together (CWT) officials are meeting today to start their analysis of the 7th round of CWT bids.

It may take another 10 to 14 days before CWT officials publicly announce the tentative number of herds accepted, says Chris Galen, National Milk Producers Federation spokesperson. On-farm audits of accepted bids could begin next week, but it will be another month before all those who submitted bids will be notified of acceptance or rejection.

Guessing how many cows CWT could kill in this seventh round is pure speculation, of course.

And as they say in all stock offerings, past performance is not an indication of future performance. But here are a few numbers to think about:

With roughly two-thirds of U.S. milk production signed to participate in the CWT this year and next, roughly $250 million will flow into CWT coffers over that period. The average bid over the previous six rounds was $5.60/cwt, or roughly $1,100 per cow (assuming a 20,000 lb/cow average).

If this round of bids comes in at the six-year average and if CWT blows its entire wad on buying cows in this round, that suggests that, at most, 225,000 cows could be getting CWT eartags within the next month.

If CWT wanted to tag 300,000 cows, that suggests the average bid could be no more than about $800 per cow, or $4.15/cwt.

Both of those scenarios are unlikely. First, it’s unlikely CWT officials will shoot their entire bank roll at one time. Politically, they’ll want to keep some of their powder dry to come back with another round later if needed. That’s especially true if USDA doesn’t restart the Dairy Export Incentive Program. NMPF will undoubtedly want to have at least some funds in reserve to subsidize product sales over the next 18 months.

At the same time, I doubt many producers will bid much less than $4/cwt—unless forced to by skittish lenders. (The lowest average CWT was $4.02 in 2003.) At $4, that means a CWT payment of $800 per cow plus maybe $500 for the beef price (remember, a third of these cows will be light weight, first-calf heifers)—or $1,300/head. A $3 CWT bid will barely net $1,100/head.

There’s also concern that CWT will take out too few cows. The most cows CWT killed were 64,000 head in 2005. Less than that number now, given CWT’s cash commitment from members, will be viewed as too timid. In fact, you could see markets drop (yes, they can drop further).

In any event, cows are going to die this summer whether it is through CWT, voluntary culling or lender-led culling. CWT probably offers the best option for those producers who want or need to get out quickly.

Just don’t pin your hopes on a market recovery from 300,000 CWT eartags coming to market in the next 60 days. That number—or more—will come to market. It’s just going to take more time.

—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at jdickrell@farmjournal.com.