Editor’s Note: This is the second
part of Jack Kirkland’s report on
the influence of the buyout
program on the government’s
purchases of dairy products. The
first part of Kirkland’s report can
be found on plage Dl6 of last week’s
issue.
BY JACK KIRKLAND
Penn State Dairy
Marketing Specialist
Total purchases of butter in 1986
was 6 percent lower than in 1965.
Purchases of butter from the
Eastern and Midwestern regions
were higher while purchases from
the West were lower in 1986 than in
1985. For the first 11 months in
1985, 5.7 percent, 45.7 percent and
48.6 percent of the butter pur
chases came from the Eastern
Midwestern and Western regions,
respectively. For that same period
m 1986,9.6 percent, 53 percent, and
37.4 percent of butter purchases
came from the Eastern, Mid
western, and Western regions
respectively.
Purchases of cheese declined 25
percent in 1986. Cheese purchases
from the Midwestern and Western
regions declined while cheese
purchases increased from the
East. In 1985, 1.6 percent, 87
percent, and 11.4 percent of cheese
purchases came from the Eastern,
Midwestern and Western regions,
respectively. In 1986, 2.6 percent,
84.4 percent, and 13 percent of
cheese purchases came from the
Eastern, Midwestern, and Western
regions, respectively.
Purchases of nonfat dry milk
was 5.3 percent lower in 1966, the
lowest decline in CCC purchases of
the three products. Purchases of
NFDM declined in all three areas.
In 1985,12.6 percent, 42.3 percent,
and 45.1 percent of NFDM pur
chases came from the Eastern,
Midwestern, and Western regions,
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Buyout Program Shifts CCC Dairy Product Purchases
respectively. In 1986, 12.8 percent
of NFDM purchases came from
the Eastern region, 40 percent
came from the Midwestern region,
and 47.2 percent came from the
Western region.
The proportion of CCC purchases
from the Eastern region increased
slightly for all three commodities
in 1986. The Midwestern region’s
share of total purchases increased
for butter but decreased for cheese
and NFDM. The proportion of
cheese and NFDM purchased from
the Western region increased
slightly while the proportion of
purchases of butter decreased
slightly. Although there was
changes in the proportion of the
commodities purchased from the
three regions, the majority of
butter and cheese was still pur
chased from the Midwestern
region in 1986. The majority of the
NFDM purchases still came from
the West.
Some factors causing this
overall decline and change in the
proportions purchased from the
regions are probably differing
rates of decline in production and,
similarly, differing rates of in
crease in demand between the
three regions.
By looking at the Milk
Equivalent of CCC commodity
purchases for 1986, a clearer
picture of the effect of the whole
herd buyout program and an in
creasing consumption of dairy
products can be seen. The pur
chases of products in the first half
of 1986 exceeded that of 1985 in
almost all months.
However, as cows were sold
under the buyout program and as
declining cow numbers began to
affect production, and, sub
sequently, the surplus milk
situation, CCC purchases began to
decline sharply and were
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significantly lower than equivalent
period purchases in 1985.
CCC M.E. purchases were 15
percent lower for the 11-month
period in 1986 than in 1985 and 32
percent lower than in 1983.
The effects of the buyout
program were very similar to
those of the diversion program. In
1984, as the diversioon program
began to take effect, there was a
sharp decline in CCC M.E. pur
chases and they were significantly
lower, by 47 percent, than
equivalent period purchases in
1983.
As the diversion program ended,
production and CCC purchases
went back to almost the same
levels, but rot quite, as in 1983.
CCC M.E. purchases were
significantly higher in 1985, from
March on, when compared to 1984.
In 1985, CCC M.E. purchases
were 57 percent higher than in 1984
but were still 20 percent lower than
in 1983.
This increase in CCC M.E.
purchases in 1985 (the ending of the
temporary solution effects of the
diversion program) prompted the
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Milk Equivalent of CCC Purchases, 1983 through 1986
1986
2,194.5
1.858.9
1.072.4
1.886.5
1.375.6
1.190.9
711.6
144.1
155.6
144.0
22.3
Total 10,756.4 12,697.1
---Million Lbs
1984
1985
1.490.5
1.397.2
1.300.6
1.700.6
1.352.2
1,315.8
1,240.4
753.7
769.6
783.0
593.7
1.997.6
1.306.6
993.9
1,045.0
906.1
721.0
627.9
202.5
88.0
125.1
81.2
8,094.9 15,926.3
enactment of the buyout program.
As of this date the program
seems to be working quite well.
There is one big difference in the
diversion and the buyout program:
cows and replacements are taken
out of production permanently
under the buyout program.
Although, there is no control of
dairy farmers not in the buyout
program and they can increase
production as they will, there will
not be an increase in production
coming from cows in the current
dairy program coming back into
production. Thus, there may not be
such a sharp increase in produc
tion and resulting CCC M.E.
purchases as occurred when the
diversion program ended.
However, the next big test of the
program will come in the ’B7 spring
flush.
Close attention must be given to
CCC M.E. purchases from now to
then for further diagnosis of the
effectiveness of the buyout
program.
CCC Sales of Products
Back to Commercial Firms
CCC does sell product back to the
commercial market. However,
there seems to be more sales back
to the commercial market since
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the whole herd buyout program
began. Again, this is evidence of
the improving situation in the
dairy industry.
Another bright spot for the dairy
industry is the declining govern
ment stocks of uncommitted dairy
products. The declining level of
purchases and the use of products
in the domestic donation program
and other government programs
has resulted in a decline, at least in
cheese and NFDM, stocks.
For the week ending on Nov. 21,
1986 uncommitted CCC stocks of
cheese and NFDM were 27 percent
and 38 percent lower than for the
same period in 1985. However, the
stock of butter was 41 percent
higher than in 1985.
It has been predicted that in 1987
the stocks of dairy products will be
exhausted.
This will present an interesting
situation since the government
uses dairy products in several
programs and might want to
maintain some inventory of
products. The effects of an in
crease in production may not be as
negative as would otherwise occur
if the government desires to have
some inventory on hand to use in
the programs it currently has.
It could, however, dispense with
some programs and reduce its
need for dairy products. This often
overlooked side of use of dairy
products could be one important
factor in determining producer
prices in 1987.
The fact that government in
ventories are not high also cannot
be used as ammunition for further
cuts in the support price. As it
stands now, this situation certainly
looks good for dairy farmers.
Minnesota-Wisconsin Prices
The impact of the whole herd
buyout program along with the
increasing consumption of dairy
products can be seen in the im
proving M-W prices during the
(Turn to Page 012)
1983
2,257.6
1.832.5
1.502.6
2.405.6
1,694.4
1.674.7
1,646.0
941.3
617.5
716.3
637.8
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