Tuesday, January 13, 2009

A bubble in milk too!

An aquaintance of mine does business with the dairy industry. Recently we had a long-ish chat about how things are going with him this year.

His sense of the dairy industry was that when things are going good they buy more cows, to sell more milk and make more money. Yet when things are going bad, they continue to buy more cows to make up the shortfall.

I mentioned that the beef growers association had agreed to cull their herds several years ago and they had successfully raised the price of beef to levels they desired. He pointed out that the beef growers don't have government subsidies. Government subsidies apparently keep dairy farmers from falling flat on their face due to poor business decisions - a luxury beef growers do not have.

My aquaintance feels that at this point he feels that there are far too many dairy cows to be consistent with current demand. Most of the milk, I am told, does not go into milk jugs for drinking, but toward cheese, infant formula and butter. Apparently demand for these items has gone off the cliff.

See this older Reuters Article for a sad commentary on parents purchasing Baby formula as soon as they have some cash.

From the Fresno Bee:

MERCED, Calif. -- Merced Congressman Dennis Cardoza says he plans to meet
with officials to find a way to help dairy operators squeezed by a sudden drop
in prices.
After two years of increased consumer demand worldwide, economic
stagnation has reduced milk consumption. Now dairy operators who enlarged their
herd size to boost production are suffering as prices dropped from $20 per
hundred pounds of milk in June to $10 today.
Cardoza said he intends to meet
with Tom Vilsack, President-elect Barack Obama's choice for Secretary of
Agriculture. So far the USDA has spent $93 million to buy 115 million pounds of
surplus dry milk in an attempt to support prices.
California leads the nation in milk production.

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