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Tuesday, February 17, 2009

Dairy Farmers Sinking, Industry Milking System

AP reports that falling milk prices are sending milk cows to the slaughterhouse for hamburger:

Dairy farmers say they have little choice but to sell part of their herds for slaughter because they face a perfect storm of destructive economic forces. At home, feed prices are rising and cash-strapped consumers are eating out less often. Abroad, the global recession has cut into demand for butter and cheese exported from the U.S.

Prices for milk now are about half what it costs farmers to produce the staple, and consumer prices are falling. Unless the market can be bolstered, industry officials project that more than 1.5 million of the nation's 9.3 million milking cows could be slaughtered this year as dairy operators look to cut costs and generate cash [Tracie Cone, "Dairy Cows Head for Slaughter as Milk Prices Sour," AP via Yahoo News, 2009.02.16].

(See? The capitalist system really does eat labor. Ungulates of the world, unite!)

The Tri-State Neighbor reports that milk prices for producers have dropped from $17–$18 per hundredweight last year to $10 per hundredweight right now. Walter Bones of Turner County Dairy says producers are losing three to four dollars per cow per day, and those losses have driven 30 South Dakota dairy farms to shut down just this year.

Cone reports that as of February 2, farmers were getting about 80 cents a gallon, while the California Department of Food and Agriculture estimates the total cost to produce a gallon of milk is $1.65. That's not a winning business model.

Of course, you'll notice that the industry and the grocers manage to make sure the farmers take the brunt of the price decline. Anyone paying half price for milk at Sunshine compared to last year? Anyone see cheese (or burgers, given the increased supply) dropping in price? I didn't think so.

9 comments:

  1. It wasn't long ago that dairy farmers were blamed for the rising price of milk. It was reported by the news media that since feed costs had risen, farmers had to charge more for their product (milk).

    When I was a kid, many of our friends had milk cows. I know of only one dairy in Lake County right now.

    Milk price is set by the buyer and not the seller in this case.

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  2. joe "Consume Citizens!" nelson2/17/2009 1:54 PM

    Hmm, probably not good business practice to cut milk prices. People are still going to buy it to some degree. Sunshine is probably cutting prices on other items that have not been selling so well, in order to move product and generate more demand for those othr products. Maybe I am wrong, since the milk I drink is produced in Kuwait or Saudi Arabia, but have you and yours reduced milk or dairy intake as a result of the economy crisis? Probably not, instead cutting out the upper fringe grocery items...the exact ones that Sunshine will reduce in price so you keep buying them ;)

    I just hope we do not have to resort to cannabalisms; my tasty flesh will surely be the first selected for the slaughter since I do not produce any milk...at least not anymore.

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  3. Great economic observation, Joe! Demand for milk is inelastic, so prices don't move. Well put, especially for a guy busy keeping America safe! (You guys find Osama yet?)

    [By the way, we won't eat you: you're too tough and stringy from hauling all that heavy Army gear around. Nice tender office workers -- that's the good eatin'! ;-)]

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  4. But hang on a moment, my sandy friend. The Cone AP article says that the demand is indeed elastic: "At home, feed prices are rising and cash-strapped consumers are eating out less often. Abroad, the global recession has cut into demand for butter and cheese exported from the U.S." In part, production costs are up, but the industry is paying lower prices in response to actual decreased demand (apparently much if it from overseas consumers deciding they don't need to pig out on cheese and butter like Americans). Otherwise, the only logical explanation for prices dropping absent demand changes would be the industry pushing purchase prices artificially low to drive out the small operators and consolidate big-industry control over the dairy market.

    But big corporations would never do that.

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  5. I prefer the taste of Soylent Green, myself! *drool*

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  6. The dairy exports are down from where they had been for about the last 4 years. The emerging econimes have had to cut back on Dairy Consumption due to the economic crash. This has increased supply and brought prices down on the raw end for the domestic side. Also, on the world market Australia and New Zealand both have suffered from droughts in 2003-2008 and there production was way down. Their Milk Production is Increasing Steadily again almost all of their products go for export mostly to the Pacific Rim Countries.
    Farmers get paid if lucky about a third of what the finished goods cost in the market. Cheese trades on the Chicago Mercantile Exchange for about $1.25lb but in the stores very rarely will you find uner $3.75lb. The farmers are getting about $10-11 per hundred lbs of milk currently. 100 lbs of milk produces about 10 lbs of cheese. The plants that produce the cheese sell the cheese mostly close to what it trades on the CME which is about $1.25/lb. So, the people packaging the bulk cheese, the distributors, and the Grocery Stores are marking up the costs 50-70% over what the farmers get.

    For fluid milk a gallon weighs abbout 8 lbs so 100lbs milk produces about 12.5 gallons of consumable milk which is selling for between $2.50-3.00 per gallon. So again the farmer gets about $10-11.00 per hunder lbs of milk and the consumer pays for that same bottled milk about $30-35. So, for that product once it leaves the farm someone is trippling the price by the time it gets to the consumer.

    Some proudcts are worse the others for the farmers. The average wheat farmer would get about a nickel for the amount of wheat used in $1.00 loaf of bread.

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  7. A few years ago, when milk prices tanked, dairy farmers in Wisconsin and other areas dumped raw milk in ditches as a sign of solidarity to increase prices. It worked back then, but whether it would work now is questionable.

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  8. It wouldn't work now because the EPA or other greenies would be all over the farmers saying the milk would kill the grass or a mouse or something else!

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  9. I was living in Wisconsin at that time and going to UW-Green Bay. Some of the farmers were also not allowing snowmobilers to go through their property nor were they letting hunters on their lands.

    Dumping milk in the ditch... understandable. Keeping me from getting dat turdy-point buck dere? Uff-Dah!

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