Thursday, October 1, 2009

Calling the bottom

After the worst six months in the history of the American dairy business, we may be able to call the bottom on milk prices. Farmers are paid per hundred pounds (cwt) of milk--about eleven and a half gallons. Prices this year are lower than they've been in decades. The top two lines on the chart above show prices during 2007 and 2008, which were pretty good. Farmers generally broke even during 2005 (the middle line around $14/cwt), but 2006 was horrible and this year has been even worse. Even now, a typical dairy farmer loses several dollars per hundredweight--at least $0.15/gallon--while store prices only gradually inch downwards.

The current price situation results from farmers setting milk-production records just when recession-hit consumers started spending less in the dairy section. Since the United States has no system for balancing out these sorts of shifts in supply and demand, the dairy industry has been spending its own money to "retire" milking herds--paying farmers to beef their cows. This helped a bit, but the only real hope is economic recovery and higher demand for dairy products.

European farmers have not been as subtle about their economic pain. French agriculture protests are not new, but the picture above shows ethnic-Dutch Belgian farmers spraying almost a million gallons of milk on their fields rather than deliver it at a steep loss. Even European Union subsidies have not been able to cushion the crisis in the dairy industry. People are thinking hard about more sustainable models for milk; we can only hope that they are now adopted and work.

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