Why does milk pricing have to be so complicated?

Why does milk pricing have to be so complicated?

The day California dairy producers have anticipated arrived Sept. 22 in Clovis, Calif.

A federal milk order hearing is being held to determine whether California milk producers and processors will be regulated by the USDA.

The hearing could take a few months – perhaps longer if Democrats and Republicans throw their annual temper tantrum in Washington, D.C. and decide against passing a budget on time. We’ll know soon enough.

As testimony commenced on day one, an economist with the USDA Agricultural Marketing Service said that government computer models assume that dairy producers will over produce milk if their price goes higher.

The premise from this government assumption is simply this: We, the government, cannot allow dairy producers to make too much milk.

Is that really the government’s role to protect the private sector from itself?

During a lengthy line of questioning, the economist was asked several times, in several ways, what would happen if U.S. milk supply exceeded plant capacity (one dairyman in the room told me that it’s quite the opposite right now).

Maybe the attorneys should address questions like that to the private sector, who builds these plants based on market factors.

Rob Vandenheuvel, general manager of Milk Producers Council, a dairy trade association with California offices in Ontario and Bakersfield, shared with me during an afternoon break that the model’s assumption of oversupply in reaction to higher milk prices cannot be viewed in a vacuum.

“We have tools to address over supply,” Vandenheuvel said.

Vandenheuvel’s point has less to do with government assumptions of plant capacity and more to do with government policy that he believes purposefully under pays California dairy producers for a perishable commodity.

Sound policy?

“Is it really sound policy in California to continually under pay dairymen so that we keep them broke and drive them out of business,” he asked. “We need our milk prices to cover the cost of production.”

Still, market forces of supply and demand cannot be ignored. If you create more of something than consumers are willing to purchase, then you’re in trouble, economically speaking.

Like I asked more than a year ago: what could the dairy industry learn from the Almond Board that could make milking cows as financially lucrative as growing almonds? Don’t miss my point: I’m not pitting almond farmers against dairy farmers – some of these folks are actually both.

Little did I know at the time I wrote that blog that milk prices would soon move over $20 per cwt. for the next year and dairymen would be once-again profitable.

Increased demand was credited for the price hike. Where is that demand today? Why did folks want so much more milk in 2014 than 2015 that the price dropped more than $5 per cwt in a single month?

Why is milk pricing so complicated?

While I personally find it difficult to disagree with Vandenheuvel’s premise that government policy is part of the problem causing California dairymen to go out of business, neither is it difficult to argue against the success of a particular California dairy processor that found, without government assistance, lucrative new markets for a byproduct of the cheese making process once simply flushed down the drain.

I think U.S. policy could do more to support American farmers and their ability to produce healthy commodities such as dairy products, fruits, vegetables or nuts, than is currently being done. What that looks like is something we all need to address very soon if we’re to continue producing the safest food on the planet from our various farm states.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish