Sour Milk

Published on: 09:38AM 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.