February 2002 DEIP Update:
Dairy Export Incentive Program Bonuses Rise; Activity Moderates

The U.S. Department of Agriculture (USDA) slowed the pace of Dairy Export Incentive Program (DEIP) acceptances of nonfat dry milk (NFDM) bids in January, following a very active holiday season. As reported last month, DEIP year-to-date total tonnage more than doubled from December 5, 2001, through January 4, 2002. However, the Foreign Agriculture Service (FAS) of USDA reported less than 2,000 MT of accepted bids for the rest of January 2002. As of February 6, 2002, the program total is 28,297 MT of NFDM -- 41% of the total NFDM allocation for the marketing year.

DEIP also includes cheese and butter. The allocation for cheese has already been filled. FAS has not yet invited bids for butter and may not since domestic butter prices remain high. Table 1 below summarizes the allocation and awarding of the products included in the 2001-2002 DEIP, to date:

The bonus awards continue to increase. In fact, all four of the accepted bids from the last week in January contained bonuses of $500 to $550/ MT, or $0.2267 to $0.2517 per pound. These higher bids pushed the overall average bonus for this DEIP year up to $383/ MT, or $0.1738 /lb. The total cost of the DEIP this year (which began July 1, 2001) now is over $10.8 million.

The bonus paid compensates the exporter for costs to procure and deliver NFDM to a foreign port. These bonuses vary with the difference between the domestic purchase cost and the competing world market prices. Therefore, as prices paid by foreign customers drops, the bonus that an exporter must apply for increases. For the two-week period ending February 1, 2002, the midpoints of the price ranges for NFDM from Europe and Oceania were $0.6736 and $0.7031/lb, respectively. These are declines of $0.075 and $0.051 in just one month! At the same time, the prices for domestic NFDM dropped only slightly, to $0.95 in the East and $0.9115 in the West.

The Carribean and Central/South America region continues to dominate as the destination of the awarded nonfat dry milk. So far this year, over 19,400 metric tons are headed there. By comparison, only 1,241 metric tons have been earmarked for Africa and the Middle East while 7,651 MT have been awarded for Asian/Former Soviet Union. Further information about the NFDM awards is presented in Table 2:

Posted: February 11, 2002