April 2002 DEIP Update:
Dairy Export Incentive Program Fills NFDM Allocation

As its program year entered its final quarter, the Dairy Export Incentive Program (DEIP) recently closed out its annual allocation for nonfat dry milk (NFDM). U.S. Department of Agriculture (USDA) began accepting bids for NFDM contracts in November and awarded half the 68,201 metric ton allocation for the NFDM program year as of February. By the end of March, USDA awarded the remaining 30,900 metric tons. The current DEIP program year runs from July 2001 to June 2002.

DEIP also includes cheese and butter. The allocation for cheese has already been filled. USDA has not yet invited bids for butter and may not because of the domestic supply conditions. Table 1 below summarizes the allocation and awarding of the products included in the DEIP for 2001-2002.

Most of the remaining NFDM tonnage was included in two final bids, out of four total, on March 15 and March 18 that accounted for 30,867 MT -- about 45% of the total NFDM annual allotment. For comparison, awards prior to these two contracts had averaged only 541 MT. In addition, the subsidy money spent on these final two contracts exceeded what had been spent for all prior NFDM contracts.

The two contracts will pay out more than $26.8 million when the NFDM is delivered, about 62% of the total $43.4 million spent on incentives to export NFDM this program year.

Bid acceptance means the USDA contracts with the bidder to pay a specified bonus on the export of an agreed amount of NFDM. 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 U.S. domestic purchase cost and the competing world market prices. Therefore, as the price paid by foreign customers drops, the bonus that an exporter must apply for increases.

DEIP bonuses on NFDM contracts grew throughout the program year. At the end of February, the average bonus over the entire program year was $430/MT, or $0.1953 per pound. With the contracts awarded in on March, the average expanded to $632/MT, or $0.2883 per pound.

For the two-week period ending March 15, 2002, the midpoints of the price ranges for NFDM from Europe and Oceania were $0.6124 and $0.6407 per pound, respectively. The price of NFDM from Oceania was down $0.0284 since the end of February, while the European price fell $0.0680. Over the same time period, the prices for domestic NFDM dropped about three cents in the east to $0.92 while remaining at $0.91 in the west.

The Carribean and Central/South American region will receive more than 56% of the NFDM awarded to date for the whole program. Rounding out the program, Asia/Former Soviet Union will receive 41.5% and the balance of 2.4% will go to Africa/Middle East. Further information about the NFDM awards is presented in Table 2.

Under a new rule for the 2001-2002 program year, awarded contracts that stipulated a delivery deadline no later than March 31, 2002, that missed the deadline will be considered nonresponsive. The non-shipped portions of those contracts could be reopened for bids on or about May 1, 2002. While it is not known what that amount may be, if any, the total volume of bids with applicable shipping deadlines was only 5,752 MT. ###

Posted: April 8, 2002