Causes of the drop in milk prices paid to dairy producers

There has been a dramatic drop in milk prices paid to dairy producers during the last six months of 2009. A description of an interesting interaction between the global economic downturn and the strengthing of the US Dollar is a part of the issue, and that's the subject of a recent article in Dairy Herd Management.

"Prices normally soften after the holiday-buying season, explains Bob Cropp, professor emeritus and dairy economist at the University of Wisconsin-Madison, but a decline of this magnitude comes as “a surprise to everybody.”The biggest driver behind the current low prices is demand, and “not because we’re flooded with milk,” Cropp adds."

"The economic downturn hurt demand both domestically and internationally. Up until the last few months of 2008, exports were strong, Cropp explains. But since the world economy has softened, exports also are down."

The US Dollar has strengthened against other world currencies, and the impact of that trend on overall exports was described in a recent Reuters article published in Forbes. Basically, this article described a number of different products that were affected by the downturn in exports, though cheese purchases was not included.

The Dairy Herd Management article didn't mention the Dollar's strengthening impact on cheese and dairy products prices either, but it did describe the decrease in global demand for dairy products.

As the US Dollar strengthens and we buy fewer imports, buyers abroad will have less money to buy US agricultural products, and those exports are economically important to the country.

Hope that helps.

DairyScienceMark

Clueless newspaper reporters

Sometimes newspaper reporters are so clueless. A recent example is in the Porterville Recorder that carried an article by Sabrina Ziegler. Porterville is in one of the California dairy ares, and the article was about a dairy producer growing a silage variety of corn. She then goes on to state:

"Dairy cows require protein, which is usually found in rolled corn that would need to be purchased from an outside source."

Even a reproductive physiologist like me knows that corn grain is rich in carbohydrates, not protein. The article describes how cows are typically fed alfalfa hay. California irrigated alfalfa has such high levels of protein that dairy producers in my area treat it as if it were a protein supplement.

While it's important to read and monitor news articles about the dairy industry, it's also important to read them carefully and interpret them according to what you know.

Hope that helps.

DairyScienceMark

Fun posting for Friday

I'm going to try to post a link to something funny in the Dairy Farm Adviser's Coffeeshop on Friday's this year. You can watch the video of the 'tap dancing cow' hosted by Bore Me by clickin on the link.

Not sure how they got the video of the cow to do that, but I enjoyed it. Not sure who paid for the video, but it's got to be a dairy organization.

Hope that helps.

DairyScienceMark

Dairy farms out of buisness: CWT announcement

The Cooperatives Working Together (CWT) Program has recently announced that 184 bids were accepted in the second round of acceptances in 2008, and those bids account for over 60,000 cows. This announcement and the regional distribution of the herds was profiled in a recent World Dairy Diary blog posting.

This program has announced that it will continue in 2009, which will likely be needed given the current economic conditions both broadly, but especially for the dairy industry.

Dairy producers in milk marketing cooperatives that belong to the umbrella organization, National Milk Producers Federation, contributed 10 cents US for every 100 lbs (22 kg) of raw milk sold to the milk marketing cooperative. These producers represent about 70% of the milk sold in the US.

Dr. Scott Brown of the Food and Agriculture Policy Research Institute at the University of Missouri did an independent analysis of the impact of the CWT program. He found that the 10 cents per 100 pounds of milk invested in the program resulted in 75 cents US return in higher milk prices.

While the industry should feel positive about the CWT Program and its benefits, it should also be recognized that the dairy producers who represent 30% of the milk produced in the US also receive the benefit of the program, without having to contribute the 10 cents. Using US averages, that's about 20,000 herds that each get an extra $2,400 or so each year because of the work of the 70% of the industry.

Not fair is it? Guess not. I remember my father fretting over those kinds of decisions when he was a leader in his milk marketing cooperative. The more things change, the more they stay the same.

Hope that helps.

DairyScienceMark

Economy slowdown hurts dairy producers too

It's not news to any dairy adviser that prices paid to dairy producers has declined in the last few months. Andrew Martin wrote an article that was first published in the New York Times that describes the decline and discusses some causes and describes when a 'turn-around' in price might occur. This article has been picked up by other newspapers, including the Gainsville Sun
and the Florence, Alabama Times Daily.

The article discusses the rapid decline in milk price over the last several months, and it draws a parallel to the global economic decline. As Americans spent money on imported products, those dollars flowed overseas into economies. What did those people with more money do? They improved the quality of the food they ate and feed to their families. This helped create a dramatic increase in export of US dairy products.

Dairy producers don't reduce herd size when prices go down, however. The farmer has a large investment in getting a calf to become a lactating cow, and the farmer needs to recoup some of that investment.

"“People don’t want to panic,” said Brian W. Gould, an agricultural economist at the University of Wisconsin, adding that farmers were receiving $20 for 100 pounds of raw milk just a few months ago. The price is expected to drop to about $14 for 100 pounds of raw milk in coming months. “It is unclear as to whether this will be a short-term or long-term market correction. It all depends on how long it takes the U.S. economy to recover,” he said."

When will the world economy recover? I don't think anyone really knows. It does seem, however, that the export market for US dairy industry will be slow to return, because the economic development in overseas markets may be delayed.

"“In some of these countries where dairy hasn’t been a big part of their diet, this is where we are seeing people pull back,” said Deborah Perkins, managing director of the food and agribusiness research group at Rabobank International."

Dairy farmers tend to think local. These days, we all need to have a global perspective if we want to understand what's going in.

Hope that helps.

DairyScienceMark