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