DlO-LancMtM- Fanning Saturday, April 26,1986
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Buyout to save $9 billion
The U.S. Government will be
paying 14,000 fanners $l.B billion
to slaughter or export their dairy
cattle, and to stay out of dairying
for five years. That’s only part of
the story.
The termination of these 14,000
dairy herds, youngstock and all,
will prevent - rather permanently
- the 12.3 billion lbs. of milk,
produced annually by these herds,
from ever entering the U.S.
market, not just for one year, but
forever. To the U.S. Government
this represents an annual savings
of about $2.1 billion in the purchase
of surplus dairy products, or $10.5
billion in five years. It costs the
Government about $l7 to purchase,
store and handle 100 lbs. of surplus
milk in the form of other dairy
products.
About 38% of the $l.B billion to be
paid to the farmers participating
in the program will come from
assessments levied upon the
remainder of the dairymen who
continue to produce milk. These
assessments will total about $684
million.
The $l.B billion farmers will
receive is taxable income. For
purpose of illustration, let’s
assume these farmers will be in a
20 percent tax bracket. That being
the case, $360 million will be
returned to the Government in the
form of taxes. Thus, dairymen will
be contributing about 1 billion of
the $l.B billion; the Government’s
share would be about $BOO million.
To help prevent slaughtered
dairy cattle from depressing the
beef market, the Government is
also required to purchase an extra
400 million lbs. of red meat during
the next five years. I don’t know
what it costs the Government to
buy a pound of red meat. If it is $2
per pound, the total cost would be
$BOO million. Thus, the Govern
ment’s total real cost might be
SATISFACTION GUARANTEED
name - For further details, write
ADDRESS
CITY
STATE
PHONE
Models and
irices available on request.
By
Glenn A. Shirk
I
about $1.6 billion (a net payment of
$BOO million to dairymen plus $BOO
million for meat).
What this really means is, the
Government will be buying
(preventing) five years worth of
surplus production, which would
have cost them $10.5 billion. They
will be spending about $1.6 billion
to accomplish this. That
represents a potential savings of
approximately $8.9 billion; with
inflation, it could be more than
this.
The average farmer par
ticipating in the dairy herd buyout
program and 50 cows; he will
receive a total of about $131,000 in
payments over a five year period
of time. However, that is not all
profit.
Requiring a farmer to sell his
dairy herd for non-dairy purposes
is similar to asking someone to sell
their home for half price. With the
exception of a few cattle that are
exported, slaughtered cattle are
selling for much less than their
true dairy value. To an averge
farmer this could be a $3O to 50,000
loss of potential income.
The rental value and sale value
of the farm are also reduced since
the dairy facilities cannot be used
for dairy purposes for five years.
In addition, farm values in
general, are depressed at the
present time. If he sells his farm
now, he takes an additional licking
on price. Because of depressed
farm values, most participants
will probably elect to keep their
farms.
If they keep their farm they can
either rent it to someone else or
continue to operate it themselves.
If they rent out the farm, they may
not be able to rent out the buildings
because of the restrictions on use
of the dairy facilities. This loss in
rental income could total $3O -
Extension
Dairy
Agent
Not All Profit
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1 50,000 in five years. In addition to
his, they’ll have the expense of
taxes, insurance and maintenance
on buildings, even though they are
not being used. Many of them will
also have some debt servicing
costs. Many farmers plan to use
these payments to reduce debt
loads.
If they operate the farm
themselves, they may have ad
ditional costs if they convert to a
new enterprise. And, as they
venture into a new enterprise, they
may not show a profit for the first
year or two. Right now, it is very
' difficult to find profitable alter
natives in agriculture.
These were a few of the many
factors that participating farmers
had to consider as they prepared
and submitted bids for being
“bought out.” As one might expect
these bids varied considerably
from farm to farm.
The Government’s goal was to
terminate about 12 billion pounds
of milk production potential by
accepting reasonable buyout bids
from farmers. This, they ac
complished. The top bid price
accepted was $22.50 per cwt. The
average bid price accepted was
$14.88, $2.12 less than the $l7 it
normally costs the Government for
each 100 pounds of surplus milk.
Many of the dairymen, whose
buyout bids were accepted, are
hard working, honest individuals
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717-263-8424
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who are genuinely interested in being questioned, and their
their community and the welfare privacy is being invaded. That’s
of their neighbors. mighty unfair to those who are
honestly trying to help the dairy
They are also concerned about situation.
the dairy industry, the milk sur
plus situation, and the Govern
mental cost of purchasing surplus Whether or not the dairy herd
dairy products and supporting buyout program will overcome the
milk prices. They realize if they niilk surplus situation remains to
continue to dairy they are con- be seen - ne thing is certain, the
tributing to the surplus problem, herds that have been slaughtered
To exit from dairying, with no won’t be creating any milk sur
restrictions, they know that their plusses! Future surplusses will
cows and their facilities would depend largely upon the number of
probably be used by someone else additional dairymen who will exit
to continue producing milk; that from the business, and on milk
wouldn’t help correct the surplus production from those who remain
problem. in business.
Dairying has provided these
families a livelihood over the
years. Now, they consider it a good
deed to participate in the dairy
herd buyout program, to return a
favor to the industry in its time of
need so it in turn can help provide a
future for other families interested
in dairying. They are not looking to
get rich off of the Government;
they only want to recover some of
the extra costs that are associated
with getting out of dairying under
the strict guidelines set by the
Government.
Unfortunately, the integrity of
many of these individuals is now
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WITH 30% DOWN
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BROS.
Lititz, PA
717-626-4705
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Milford, DE
302-422-4837
ECKROTH BROS.
FARM EQUIPMENT
New Ringgold, PA
717-943-2131
As the dairy economy tightens,
many dairymen find it necessary
to increase milk output in an effort
to keep current on the bills. If
surplusses continue the milk
support price will be triggered
downward. Further reductions, or
assessments, can be expected too
as a result of Gramm-Rudman
legislation. As prices continue to
fall, more and more dairymen will
exit. That may help offset in
creased production from other
dairymen. Some people would like
to implement a system of supply
management; others prefer a free
market. What lies ahead remains
to be seen.
. S
k A.
’ \
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Stoneboro. PA
412-376-3740
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Springs, PA
814-662-2222
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Bloomsburg, PA
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Dayton, PA
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