Thursday, June 25, 2009

Market Smoke

Click on graph to enlarge


Bloomberg’s article on milk price is loaded with conventional economic myths. The article states:

“Farmers plan to shift the pain to consumers. The National Milk Producers Federation in Arlington, Virginia, will pay dairies to slaughter 103,000 U.S. cows in coming months. Milk futures prices will double next year to a record $23 per 100 pounds (43.5 kilograms) as the herd shrinks by 171,000 head, the most since 1989, said Michael Swanson, a senior economist at Wells Fargo & Co., the largest lender to U.S. farmers.”

Another interesting, albeit confusing, quote from the article:

“Retail butter prices may rise above the record of $3.937 a pound and cheddar cheese may top $5.097 a pound, according to Jerry Dryer, 65, the editor of the industry newsletter Dairy & Food Market Analyst in Delray Beach, Florida.”

The truth is, milk production is fairly predictable. Consumption is also quite predictable. Under those two givens, how can it be that farm milk price has very little to do with how much milk is produced.

Milk price, in essence, is the result of the internal needs of the powerful buyers of dairy farm milk. The myths are just smoke screens.

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