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On the Udder Hand

RSS By: Chris Galen, AgWeb.com

Chris Galen is the Senior Vice President of Communications for the National Milk Producers Federation .

Sour Milk

Jan 03, 2009

I’ve been fairly prolific, to the point of being repetitively boring, in talking about the rise and fall of the commodity boom, and what it means to rural America in particular.  Here are some postings from the past 12 months on the general topic:

Bubblicious Isn’t Just for Gum

Gee, That Was Quick!

The Empty Easter Egg Becomes Hollow Halloween Candy

The Hollow Chocolate Easter Nest Egg

A Green Christmas in Big Red Country

 

As the New Year began this week, I noticed that the New York Times – still one of the key arbiters of what’s Big News – also paid note of the same trend, focusing specifically on the recent plunge in dairy prices.  A story by Andrew Martin, “As Recession Deepens, So Does Milk Surplus,” can be found here.

 

This quote from the article basically sums up the point:

But now, demand for dairy products is stalling amid a global economic slowdown and credit crisis, even as supplies have increased. The result is a glut of milk — and its assorted byproducts, like milk powder, butter and whey proteins — that has led to a precipitous drop in prices.

 

I had spoken to Martin last month, prior to him writing the story, about what was happening in the global dairy markets, and how quickly demand was faltering in the face of increased international competition for milk exports, and of course the deepening recession.

 

I think the article actually understates just how dramatic that plunge has been.  Last spring, dairy prices for things like cheese and skim milk powder were at least double what they are today.  In just about six months’ time, prices have crashed dramatically.  Now, the same can be said for other commodities as well, ranging from corn to oil.  And measured as a percentage, their drops have indeed been larger. 

 

But you also have to consider where they were.  This past summer, when oil hit $145/barrel, and corn was $8/bushel, those were levels that had no historic precedent.  By contrast, the level milk prices reached this summer were less than what they’d been in the past.

 

Regardless of the math lesson, the net effect has been dramatic, and it’s going to hit dairy farmers like a tsunami in 2009.  Milk checks this spring will look meager indeed compared to a year ago, and while critics like Ken Cook (as quoted in the Times story) can whine about how government safety nets coddle farmers (“They don’t want to downsize or respond to the market signal”, he asserted), the fact is that there will be slew of downsizing, meaning farms selling out and banks recalling loans in the year ahead.  It’s just inevitable, and will mean farm families’ livelihoods will disappear, just like in the mortgage meltdown we’ve been witnessing across the country.

 

The irony with this boom and bust cycle is that we know with great certitude that there is always an inevitable down trough that is paired with the upward surge; it’s like the sun rising and setting.  But just as inevitably, we always seem surprised when it arrives, and with how suddenly the damage gets inflicted.

 

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COMMENTS (7 Comments)

Westgate, Iowa
Frank PA, you'll never get all the dairy guys together, that's what makes you all independent. It's the same for any ag group from grain to livestock. Even if you were able to unite 95% of all dairy farmers, the other 5% would cut your throats. Being independent is what makes a land hog bid 5 bucks more per acre or a hog building go up on a marginal piece of ground irregardless if it might pass the DNR matrix but still be common sense wise too close to a stream. Farmers are basically good as a whole, but it's that 5% greedy bunch that ruins it for everyone else. I applaud your efforts to unite, but as far back as Henry Ford, the government and big business are united in keeping farms and farmers independent for the sake of CHEAP FOOD. Cheap food keeps a nation's population from rebelling. If your belly is full, you don't mind if you're getting screwed every where else.
9:14 PM Jan 8th
 
Frank PA
The question is how do we cut production? Everyone will tell you they need all they can get to keep things going. You can not tell a farmer who just built a mutimillion dollar barn that he has to cut production by 10%. At some point we as dairymen need to all sit down for a cup of coffee and come up with a plan we all can agree on. Many years ago I read an article asking a Senator on the dairy committee for the new Farm Bill, how he decides what needs to be put in for dairy. His answer has always stuck with me. He said every farm group walks in his door with a different answer to fix the dairy problem, so the committee ends up coming up with their own plan. I dont need to tell you how well this has been working for us. So how do we pull all of the different dairy groups together for a summitt ,come up with one plan and go to Washington with one voice instead of a hundred different ones?
3:34 PM Jan 8th
 
 
 
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