USDA planning $20 million cheese purchase

Looking to stem farmer losses after dairy prices plummet

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Bloomberg

The Department of Agriculture plans to buy $20 million of stockpiled cheese to distribute to food banks and pantries nationwide in an attempt to stem farmer losses after dairy prices plummeted amid a global milk glut earlier this year.

The purchase of about 11 million pounds of cheese, which the USDA reported Tuesday, comes in addition to $11.2 million in subsidies for dairy producers announced earlier this month. A dairy lobbying group had asked for as much $150 million in cheese purchases.

“We understand that the nation’s dairy producers are experiencing challenges due to market conditions and that food banks continue to see strong demand for assistance,” Agriculture Secretary Tom Vilsack said in the statement.

A combination of plentiful supply and flagging global demand has put farmers on the back foot in recent years. Some American dairy cooperatives had so much milk this spring they were forced to dump tens of millions of pounds.

Yet more recently, producers in some parts of the country have seen premiums on the open market as food manufacturers struggle to purchase enough milk. Declining corn and soybean prices also mean lower feed costs for farmers.

Overall, 2016 dairy margins will shake out close to the five-year average and increase in 2017, encouraging modest expansion within the industry, said Bill Brooks, a Dearborn, Mo.,-based dairy economist at INTL FCStone. Futures prices for Class III milk — a category of the commodity used to make cheese — have rebounded 45 percent since hitting at a six-year low in May in Chicago. That’s reduced the need for federal aid, said Marin Bozic, a dairy economist at the University of Minnesota in St. Paul.

“The USDA wants to demonstrate that it’s there for dairy,” said Bozic, who said the market recovery is probably why the USDA’s planned purchase amounts to less than the $150 million asked for. “In an election season, they want to do something, even if the market seems to be rallying.”

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