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.


  1. I am sure you saw the pro big processor article on Dairy Herd Management yesterday, along with a long letter from the editor taking anybody who believes there is monopolistic influence on the price of milk to task.
    Dean claims to buy less than 15 % of the nation's milk supply. I have been called to explain and I don't have the numbers...can you discuss this? and thanks.

  2. Math isn't my strongest subject, so if I'm way off on this please just let me know.
    The July milk price in Europe was 24.77 euro cents per liter. The exchange rate is 1 Euro = 1.4771 U.S. Dollars. So .2477 Euro cents would convert into .366 American cents. One liter of milk is approx. 2.2 pounds, for a U.S. price of about 16.64 cents per pound or $16.64 dollars per cwt.
    These guys are on strike, dumping milk with a price that is considerably higher than what we have been getting for months.
    I will say no more as your brain can take it from here.
    Jeff Suehring

  3. 3 puppy: It's a desperate attempt by Deans to twist the numbers. They may "only" control 15% of all milk, BUT Deans is a fluid processor. They don't make cheese, or yogurt or other class 2,3or4 products. So, if you take the national class I utilization for last month, you will find a usage of 37%.

    So, breaking it down to simple cwts, Dean controls 15lbs of every 100lbs nationally. BUT only 37 lbs of that 100 are class 1. SO divide Deans 15% into that 37 lbs and you come up with 40.5% control of class 1 milk.


  4. Thanks, folks...what you firmly believe to be true and what you can use to convince others who pounced on the letter as evidence of a witch hunt are not always the same.