Reader: Need Flexibility to Adjust to Markets
Sep 02, 2009
I appreciate your recent article on MPCs (MPCs Aren’t Dairy’s Biggest Problem). I am a County Extension Educator who works primarily with crop production in Stearns, Benton and Morrison County. A lot of the crop production work I do in these counties is aimed at livestock feed, and a significant portion of that for dairy herds. So I try to stay a little tuned to dairy issues. I don't consider myself an expert economist, nor an expert on how milk markets work.
So with my limited experience in these fields as I watch 2009 and previous milk price cycles, I continue to have a couple of observations and questions that may or may not have merit. I continue to look for what there is to learn that can be useful to dairy farming families. I also look for what I can learn that helps me to be more effective in my work and interaction with farmers and agribusiness colleagues.
1) It seems like dairy producers, like auto producers and others need to have some flexibility with market conditions. If the sale of Hummers goes in the tank, and GM decides to keep cranking them out, full steam ahead, because they have overhead investments that need to be spread over lots of Hummers...GM would be beating itself into the ground. The same could be said for the auto industry collectively in the production of vehicles generally. The same could be said of producing TVs, tennis shoes, house building, and most anything else.
So for dairy, when there is a drought in Australia/New Zealand, the world's economy is humming and demand is great, and there is almost no limit to the amount of milk we can move...we crank up and produce. But the market will change eventually for one reason or another. If the dairy sector is not positioned to effectively adjust to the change, it's headed for disaster like other segments of the economy. The goal might be to "grow and to prosper," but it seems like we need to be able to make market responding adjustments along the way without burning up $100,000 to $1,000,000 of equity on a farm when there's a serious wrinkle in the market. Worse than the dairy equity, we're burning out a lot of good dairy people and on farms and in local businesses that serve dairy producers. Even GM doesn't have deep enough pockets to produce 5,000 Hummers in a year when the market capacity declines to 500.
2) It could be that MPCs and other dairy imports are quite steady from year to year. It's certainly true that across our economy, if we expect to export our products, we have to be willing to import something too. One of the questions about MPCs is whether they are "under the radar screen" in the WTO discussions and related to tariffs that might be applied to other things. One dairy producer I talked with this summer says tariffs are not just for restricting trade. One of his concerns was that IF imports displace local business opportunities, the displaced business or production is no longer there to support local schools. Obviously this dairy producer sits on a local school board. I kind of doubt if tariff dollars actually find their way back to supporting local schools and community needs. But they are part of the federal pot.
3) You shared that "For the sake of argument, assume imported MPCs are displacing 150,000 cows today. But they were displacing even more last year (with higher MPC imports), when milk prices were at $20." I'd suggest everything kind of works when the world economy and demand is great. When things are tough, farmers are told to scrape the bottom of every barrel to survive: feed costs, breeding programs, borrowing capacity, labor, equipment overhead, etc. Every little bit counts. So maybe little things in the world market place and the rest of dairy industry, like MPCs, count when times are tough too. I realize that U.S. dairy processors probably can't tool up to produce MPCs part of the time and not all of the time. Then again maybe that's part of being flexible, efficient and responsive to markets. And again if our system depends on exports we need to accept imports of something also. If a restaurant wants to serve gourmet cheese made in Italy as a specialty, there is no way to produce that in the U.S. You could make the same recipe here, but it wouldn't be "imported from Italy."
4) It seems like there out to be a central, easy to understand way to generate a report on a whole milk basis that shows U.S. Production, Consumption, Imports, Exports. I suspect this isn't particularly easy to do when milk is fractioned into many components for many use. We shouldn't have to talk endless in circles between different groups about what these number are.
5) To be told that dairy producers just have to beat each other into the ground when the market turns sour, sounds a little insane to me (doing the same things and expecting different results). I'm looking for some serious discussion about a strategy that heads off more of the financial bloodshed and misery that comes out of this process. I tend to think it's the dairy industry's task to work on this more so than the governments. But if the dairy industry isn't willing to, perhaps the government ought to lean on it a little. When I read that Dean's Foods, for example, showed 31% greater profits for second quarter 2009 than for second quarter 2008, while dairy farm families are taking a $3-$4 loss per cwt milk produced...if I were a dairy producer, I'd certainly be thinking there is something in the mix of all of this that is a very significant disservice to me.
Do you think the dairy industry at some level ought to have the capacity to anticipate and respond to market signals in a way that heads off the serious losses of financial and human resources that are taking a toll in a year like 2009?
Again thanks for your efforts.
County Extension Educator- Benton, Morrison, Stearns Counties