Tuesday, September 1, 2009
(click on images to enlarge)
A comment from the last post is: “how is the market right now in America for the dairy farmers?”
Right to start, the term “market” is such a vague term, that although there are definitions of the term, the definitions fail to explain the workings of the “market.”
Dairy farmers should realize all the variation in farm milk price is, quite simply, determined by the working of the cash market at the Chicago Mercantile Exchange (CME). Block Cheddar price at the CME has a near perfect correlation with farm milk price.
Block Cheddar, traded at the CME, has a very, very weak correlation with farm milk production. Block cheddar, traded at the CME has a very, very weak correlation with Cheddar production.
So, while the term “market” is used, the term in this case really means shenanigan – defined as, “a devious trick used especially for an underhand purpose.” Consider the above graphs.
Having said all that, milk is drying up fast. As we move into winter, milk is likely to get even tighter. Replacement prices are beginning to rise. All signs point toward better prices. But, they never should have fallen as low as they have. Milk price has assumed the form of legal plunder.