Friday, January 2, 2009

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.


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