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Aid to Ranchers Was Diverted For Big Profits
Federal officials still don't know how much of the government's milk was diverted to foreign countries and to states that didn't have a drought. Warehouse examinations identified some abuses. But "when we turned over title [for the milk] to the states, we were finished," Farrish said.
State officials said the assistance program was fraught with loopholes that fostered the speculative trading. And when they did report cases of suspected abuse, they said, the USDA was slow to respond.
  Flory Eutzy walks past bags upon bags of powdered milk, part of the federal government's stockpile, stacked in her company's warehouse in Chambersburg, Pa. (By Bill O'leary -- The Washington Post) Graphic
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"We didn't have the capability to do enforcement ourselves," said Wyoming's Hoobler. "It was me and a part-time intern running the program. When we did phone in a concern, we didn't get a lot of feedback."
An Overflowing Cave
For years, the government has periodically purchased powdered milk -- as well as butter and cheese, the other byproducts of raw milk -- as part of a congressionally mandated price-support program for milk producers. By 2003, the Agriculture Department had accumulated a record 1.4 billion pounds of powdered milk in warehouses and in a huge limestone cave in the Kansas City area.
The bulging stores coincided with a drought that left livestock pastures burned in about a dozen states. Some livestock owners were faced with selling their herds, Farrish said. Giving them the powdered milk as an emergency source of feed seemed like a good way to help out. "We did stop the wholesale liquidation" of breeding herds, Farrish said.
In 2003, the government released 390 million pounds of powdered milk for the ranchers, giving it to the states for $1 a truckload. Responsibility for running the program was given to the states. In addition, ranchers were permitted -- within limits -- to trade their government allotments to feed dealers for other feed mixes and in some cases cash.
The trading made the secondary market possible. Once the powdered milk reached a feed dealer, it had a much higher potential price. It could be mixed with other feeds and resold to ranchers or sold to brokers who in turn traded it at the going rate in the commodities market. Protein-rich powdered milk is one of the most widely traded commodities, because it is versatile enough to be used in both animal feed and human food, such as pudding, hot-chocolate mix, ice cream and infant formula.
"Our job is not to hold on to any product," explained Pam Neary, owner of High Country Mercantile Inc., a commodity-trading firm in Cody, Wyo., that acquired the rights to millions of pounds of powdered milk that it then sold to third parties. "We don't hold it. We don't store it. It's in one hand and out the other hand."
Jake Malloy, a trader in Casa Grande, Ariz., said, "I think the product had a lot of value. But ranchers didn't get that much. It was the feed dealers and mills who really made out on this."
Rancher Brad Bateman of Elberta, Utah, who runs 10,000 head of cattle, said he got "truckloads" of powdered milk. He used some as feed and traded the rest to a broker for up to $400 a load. With the profits, "I could buy soybean meal cheaper," Bateman said.
A Warning in a Fax
One of the first hints of the burgeoning market in government milk came in a fax to the Utah Department of Agriculture and Food on Oct. 23, 2003.
The fax said a USDA warehouse was about to ship nearly 250,000 pounds of powdered milk from its stockpile to a private warehouse in Salt Lake City. That puzzled state officials, because the shipment was clearly outside their allotment under the federal program.
