Wednesday, September 23, 2009
(click to enlarge)
Indexes are a way of measuring relative change. For instance the consumer price index is used to calculate inflation. This is done by dividing the current year’s prices for all items by the base period (1982 -84 = 100) and multiplying by 100.
In 1980 the all milk price was $13.05. Adjusted for inflation the 2009 milk price should be $34.18. Parity at 100% would have been in August 2009, $45.00. This shows that dairy farm input costs have risen faster than inflation.
The consumer price index for dairy products tracks very closely with the CPI for all items. In other words retail price tends to be all the traffic will bear.
Farm prices are another matter. In the above graph farm price index for milk was 148. So far this year, the farm milk price index is 91.21. The average of the farm milk price index from 1980 through August 2009 is 101.55.
Put another way, all of inflation has been captured by those in between the farm and the public. At the same time dairy farm costs have put a double squeeze on dairy farms.
Essentially, the problem is structural. Lack of antitrust enforcement above the farm level has created large monsters who are as dedicated to planning as the former Soviet Union. Farm milk price appears to be both variable and volatile (or did I repeat myself ), when, in fact, it is fairly predictable. “You ain’t goin’ nowhere.”
What we are actually measuring in not distance or dollars but, power, or the lack thereof.