Market allocation

In a recent book review Robert M Solow,Nobel prize winning (1987)economist wrote, "Any modification of market outcomes modifies the allocation of incomes, wealth, status, and power. So it is no wonder that the discussion has become thickly encrusted with ideology."

In 2009, American dairy farmers received approximately $10.4 billion less than they received in 2008. Some allocation of income! For the most part the American public, in 2009, paid pretty much what they paid in 2008.

http://dairyline.com/wpbackend/?p=1613

Government dictate or market dictate; that’s the question the dairy industry struggles with and the International Dairy Foods Association’s Bob Yonkers challenged DairyLine listeners in Tuesday’s broadcast to better prepare themselves for coming ups and downs in milk prices.

I suspect there are more than the two choices Bob Yonkers suggests.

This Time is Different

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For some time, loss of dairy farms has been taken as normal, maybe even healthy by some.

Cows simply moved to a bigger, more “efficient” farm. Unnoticed in all this is the role real estate played in this scenario. Los Angeles real estate values and IRS tax code 1031, drove expansion of dairy farms in the West. Throughout the country banks loaned money to dairy farms, in part because of appreciating land values.

Under those conditions, the data suggests that when milk prices rise, farms got out while the getting was good. Since the beginning of 2009 the getting out has not been good. Unemployment is now double historical levels. Real estate is in the dumps. Cow prices stink. However, if and when things turn round, there will be a huge exodus. Few expansions are on the drawing, so, who will take over milk production?

This time,it really is different.

Mutual Benefit

There is no way to fathom the crash in NFDM prices. California prices plummeted this week to $1.05 per pound and the NASS price fell to $1.09 per pound. CME Grade A NFDM stayed at $1.19 per pound today.

Early next week Fonterra will hold another internet auction for whole milk powder and anhydrous milkfat. The January auction fell slightly which should have meant U.S NFDM prices should not have plunged off the cliff.

Almost 70% of the NFDM is made by two co-ops in California LOL and CDI.

The Capper - Volstead Act exempts co-ops from antitrust enforcement provided certain conditions are met:

TITLE 7--AGRICULTURE

CHAPTER 12--ASSOCIATIONS OF AGRICULTURAL PRODUCTS PRODUCERS


Sec. 291. Authorization of associations; powers

Persons engaged in the production of agricultural products as
farmers, planters, ranchmen, dairymen, nut or fruit growers may act
together in associations, corporate or otherwise, with or without
capital stock, in collectively processing, preparing for market,
handling, and marketing in interstate and foreign commerce, such
products of persons so engaged. Such associations may have marketing
agencies in common; and such associations and their members may make the
necessary contracts and agreements to effect such purposes: Provided,
however, That such associations are operated for the mutual benefit of
the members thereof, as such producers, and conform to one or both of
the following requirements:
First. That no member of the association is allowed more than one
vote because of the amount of stock or membership capital he may own
therein, or,
Second. That the association does not pay dividends on stock or
membership capital in excess of 8 per centum per annum.
And in any case to the following:
Third. That the association shall not deal in the products of
nonmembers to an amount greater in value than such as are handled by it
for members.

To me, the key phase is "That such associations are operated for the mutual benefit of the members thereof."

Who makes certain of this - obviously, no one. So, an important question remain, what should the criteria be for evaluation of cooperatives?

Dean Foods Defends Market Power in Lawsuits All Over U.S.

http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202439592732&Theyre_Really_Milkin_It_Dean_Foods_Defends_Market_Power_in_Lawsuits_All_Over_US

Perhaps a critical mass is developing.

Looks like federal and private antitrust regulators have milk on the brain. Dean Foods Co., the nation's largest dairy processor, is now defending three antitrust lawsuits, the latest one in Wisconsin. While private suits are pending in Tennessee and Vermont brought by dairy farmers, the latest accuser is the federal government.

On Jan. 22, the Department of Justice, along with state attorneys general from Illinois, Michigan and Wisconsin, brought antitrust charges against Dean Foods in federal court in Milwaukee. The suit challenges Dean Foods' acquisition of two milk processing plants from competitor Foremost Farms, arguing the purchase has undermined competition and left many school districts in the three states with a monopoly milk provider.

Commercial Disappearances

USDA’s “Commercial Disappearances” figures are out, for November 2009, and it shows a drop in American type cheese of 7.7%, when compared with November 2008. American type cheese is primarily Cheddar and Colby, not processed American plastic cheese.

For the period September through November USDA shows a drop in “Commercial Disappearances” of American type cheese of 1.4%.

USDA uses data submitted by processors. On the other hand, Information Resources, Inc. (IRI) provides scanner data of information passing past scanners in supermarkets, which is then fed through computers to IRI.

IRI reports American type cheese sales increased by 11.9% in the September through November period.

My guess is the IRI data is more accurate than the USDA data. Perhaps what is needed is a NCIS (for National Cheese Identification System) with edible chips, which would disappear with no added calories after its usefulness had been served.

Going and Coming

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http://www.fda.gov/ForIndustry/ImportProgram/ImportRefusals/default.htm

Here is an interesting twist. Each month FDA post products refused entry. The list can be found at the above link.

The nation's first manufacturer of MPCs, DFA's joint venture with Fonterra, Dairiconcepts, apparently had a returned item. So, it came back into the country a little shopworn.

According to a GAO study, several years ago, these "detentions" are little more than formalities. The product is likely to end up in some form on a shelf near you.

More Melamine

http://www.nytimes.com/2010/01/26/world/asia/26china.html

With the following, who would think NFDM price would fall in the CME today?

January 25, 2010
More Tainted Dairy Found in China
By MICHAEL WINESJ

BEIJING — Health officials in southern China have swept frozen confections and other dairy products from stores after discovering they contained melamine, the industrial compound at the center of a tainted-food scandal that rocked China’s dairy industry in 2008, news reports said Monday.

It was the third time in a month that Chinese authorities had announced problems related to melamine, suggesting that producers are still making and selling tainted food ingredients despite outrage over the 2008 scandal and what the government heralded as a crackdown.

The former head of the Guangdong Provincial Dairy Association, Wang Dingmian, confirmed the recalls in a telephone conversation. Mr. Wang, who has often taken on the role of spokesman for dairy companies in southern China, refused to provide further details.

The latest case took place in Guizhou, a province in the south of China’s interior. The provincial newspaper Guiyang Daily reported that food companies from Hebei, Liaoning and Shandong Provinces and the city of Shanghai had produced the tainted products in March and April 2009. The companies’ officials were reported to have said that the melamine was in milk powder they bought elsewhere to use as an ingredient.

The state-run newspaper China Daily reported Monday that the three companies were banned from selling products in Guizhou.

Melamine is commonly used in plastics and fertilizer, among other products. Its high nitrogen content can make foods appear to be protein-rich in standard nutrition tests. When eaten, however, the chemical can cause kidney stones and kidney failure, especially in infants and toddlers.

At least six children died and 300,000 were sickened in 2008 before investigators discovered that 22 major food companies were selling products laced with melamine to make them appear more nutritious. The revelation set off worldwide recalls of Chinese products, from dairy goods to dog food, and bankrupted China’s biggest dairy company, Sanlu. In November, China executed two people in connection with the scandal.

In interviews this month with Chinese news outlets involving an earlier recall, Mr. Wang was quoted as saying that officials had failed to monitor a large batch of melamine-tainted products left on the market after the 2008 scandal, and that the lapse had been kept quiet “to safeguard the good image of the dairy industry.”

Shanghai government officials said last month that they had closed one firm, Shanghai Panda Dairy Company, and arrested three of its executives after some batches of products made in 2008 were found to contain melamine. Journalists later reported that government officials had learned of the contamination in December 2008, but took no action.

Late last month, officials in Shaanxi Province arrested three dairy executives after discovering that 200 bags of their company’s milk powder were laced with melamine.

More Dean/DOJ

http://themilkweed.com/

At The Milkweed website is the entire complaint filed by the Department of Justice against Dean Foods.

Here is a small but, telling part:

42. The Acquisition will result in a substantial increase in the concentration of processors that compete to supply fluid milk to purchasers located in the relevant geographic market. Some of these processors are located outside of Wisconsin, the UP, and northeastern Illinois. Prior to the Acquisition, Dean had the largest share of sales to purchasers within the relevant geographic market. Dean accounted for 44.6 percent of fluid milk sales; Foremost accounted for another 12.6 percent. As a result of the Acquisition, Dean now has more than 57 percent of all fluid milk sales in the relevant geographic market. There are only two other competitors with more than five percent of fluid milk sales in the relevant geographic market, Kemps LLC (a subsidiary of Hood LLC) ("Kemps") and Prairie Farms Dairy, Inc., which have 17 and 15 percent,respectively. Moreover, Dean's post-Acquisition shares are even higher in certain areas within the relevant geographic market: over 85 percent in the UP and over 60 percent in Green Bay, Wisconsin, and in northeastern Illinois (including Chicago).

Dean Foods has vowed to fight: http://www.deanfoods.com/our-company/news/press-release.aspx?StoryID=1378120

Dean feels the purchase will, "spur competition in and around Wisconsin."

Tragedy

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/22/AR2010012204899.html

The Associated Press
Friday, January 22, 2010; 10:54 PM

COPAKE, N.Y. -- State police in New York say an upstate dairy farmer shot and killed 51 of his milk cows in his barn before turning the rifle on himself.

State police found the body of 59-year-old Dean Pierson in his Copake barn on Thursday. A visitor found a note Pierson had left on the barn door that said not to come in and to call police.

State police would only say that Pierson was having personal issues.

Any "personal issue" is bound to be made worse by financial stress. What dairy farmer today is not experiencing financial stress?

"E pluribus unum is surely an ironic motto to inscribe on the currency of this Utopia gone bust," said Kurt Vonnegut in his novel "God Bless You Mr. Rosewater"(1965).

Lives, how many lives must be sacrificed before these false gods of "supply and demand"?

US vs Dean

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http://www.justice.gov/opa/pr/2010/January/10-at-072.html

Here is the press release:

FOR IMMEDIATE RELEASE AT
FRIDAY, JANUARY 22, 2010 (202) 514-2007
WWW.JUSTICE.GOV TDD (202) 514-1888

JUSTICE DEPARTMENT FILES ANTITRUST LAWSUIT
AGAINST DEAN FOODS COMPANY

Lawsuit Seeks to Restore Lost Competition in Sale of Milk to School Districts and Retailers
in Illinois, Michigan and Wisconsin

WASHINGTON - The Department of Justice filed a civil antitrust lawsuit today against Dean Foods Company challenging its April 2009 acquisition of Foremost Farms USA's Consumer Products Division. The department said that the merger eliminates substantial competition between the two companies in the sale of milk to schools, grocery stores, convenience stores and other retailers in Illinois, Michigan and Wisconsin.

The Department of Justice's Antitrust Division, along with state attorneys general from Illinois, Michigan and Wisconsin, filed a lawsuit today in U.S. District Court in Milwaukee, seeking to require Dean Foods to sell the dairy processing plants it acquired from Foremost Farms.

Dairy processors, such as Dean Foods and Foremost Farms, purchase raw milk from dairy farms and agricultural cooperatives to pasteurize and package the milk. The processors then distribute and sell the milk to school districts, supermarkets, grocery stores and other commercial customers.


"The purpose of the department's lawsuit is to restore competition so that schools, grocery stores and other retailers in Illinois, Michigan and Wisconsin, will pay lower prices for their milk," said Christine Varney, Assistant Attorney General in charge of the Department of Justice's Antitrust Division.

The department's lawsuit not only seeks to undo the 2009 deal but also requires Dean Foods to notify the department at least 30 days prior to any future acquisition involving a milk processing operation.


Dean Foods' acquisition of Foremost Farms' two dairy processing plants in De Pere and Waukesha, Wis., eliminated an aggressive competitor against Dean Foods, the department said. Dean Foods and Foremost Farms were the first and fourth largest milk processors in northeastern Illinois, the Upper Peninsula of Michigan (the UP) and Wisconsin, respectively. Dean Foods now has approximately 57 percent of the market for processed milk in northeastern Illinois, the UP and Wisconsin.

The department's complaint alleges that the transaction reduced competition substantially in the sale of milk to school districts in the UP and Wisconsin. Dean Foods and Foremost Farms were the two best-situated processors from which to purchase milk for numerous school districts in the UP and Wisconsin. After Dean Foods' acquisition of Foremost Farms' Consumer Products Division, these districts have been left with a monopoly provider. There are also a substantial number of school districts in the region for which Dean Foods and Foremost Farms were two of only three recent or likely future bidders. These school districts have been left with only two choices after the acquisition.

The department also alleges that the acquisition reduced competition substantially in the sale of milk to supermarkets, grocery stores, and other commercial customers throughout northeastern Illinois, the UP and Wisconsin. Dean Foods' acquisition deprived these retailers of the benefits of substantial head-to-head competition between Dean Foods and Foremost Farms. Further, the department said that with Foremost Farms eliminated as a competitor, it would be easier for Dean Foods to coordinate with the remaining milk processors, whose competitive decision-making Dean Foods has described as "more predictable" and "rational."

The April 2009 transaction between Dean Foods and Foremost Farms was not required to be reported under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which requires companies to notify and provide information to the department and the Federal Trade Commission before consummating certain acquisitions. The purchase price of the transaction was less than the minimum reporting threshold.

Dean Foods is a Delaware corporation with its principal place of business in Dallas. It is one of the largest food and beverage producers in the United States, with revenues of $12.5 billion in 2008. Dean Foods’ Dairy Group is the country’s largest processor and distributor of milk and other dairy products.

Foremost Farms is a Wisconsin member-owned business association headquartered in Baraboo, Wis., the members of which are dairy farmers. In 2008, its Consumer Products Division had net sales of $233.7 million. Prior to Dean Foods' acquisition of its Consumer Products Division, Foremost Farms processed its members' raw milk at its plants in DePere and Waukesha, Wis., as well as at other facilities.

Government & Mozz

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The U.S. government buys dairy products, including mozzarella, for food programs.
Specifications for mozzarella are at: http://www.fsa.usda.gov/Internet/FSA_File/dmoz1.pdf

Also above is the page with critical information. Milk Protein Concentrates (MPC) are widely used in making mozzarella. Most are imported. So, who is watching the store?

Looking at the winners above, it would appear, the government has bought some mozzarella with a very short shelf life.

School lunch programs are an area which should have more scrutiny.

More or maybe less mozzarella

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Mozzarella has a high yield factor, all things being equal, which they never are, the yield is about 30 % more than Cheddar. Still, many mozzarella makers like to spike the recipe with large amounts of MPCs and various other ingredient.

The Leprino box photo above is interesting. Multiple claims of quality appear and yet the “storage procedures” suggests something else. This is a frozen product which must be used with two weeks of receipt.

My local supermarket has a store brand of mozzarella which has a current expiration date of May 7, 2010 – and that is not frozen.

Just type “Leprino” into the search box at the U.S. Patent and Trade Office and there are 30 patents for Leprino.

An example is:
U.S. patent number 7,579,033 August 25, 2009

16. A method for preparing a soft or firm/semi-hard ripened or unripened cheese, comprising: a) providing a slurry that comprises a molten blend of a cheese curd and one or more ingredients selected from the group consisting of a starch, a dairy solid, a gum and a cellulose agent; and b) shaping and cooling the slurry to form the soft or firm/semi-soft cheese, wherein the concentration of the starch, the dairy solid, the gum or the cellulose agent in the slurry is sufficient such that the soft or firm/semi-hard cheese that is produced has one or more of the following characteristics (i) a starch concentration of at least 0.1 wt. %, (ii) a dairy solid concentration of at least 0.1 wt %, or (iii) a gum or cellulose agent concentration of at least 0.1 wt %.

Who knows what is in the product which came in the Leprino box? However, two weeks is definitely a very short time for frozen mozzarella. Take a look in your supermarket at expiration dates.

Mozzarella Money

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Dairy farm milk is priced by a handful of traders at the CME. If you are in a federal milk market order, many will counter with some meaningless gobbledegook about NASS.

In any event, the cheese traded on the CME is Cheddar. However, all class III, cheese milk, is priced from the CME regardless of yields and price.

More Mozzarella is made than Cheddar. If you take average farm milk, without any fortification, the yield for Cheddar will be 9.6 pounds per hundredweight. The yield for mozzarella will be 13 pounds per hundredweight.

Cheddar needs some minimum aging. Mozzarella requires no aging.

Anyone might logically think the wholesale price of Cheddar would be higher than the wholesale price of mozzarella. As the above charts indicate, mozzarella is a real moneymaker.

Further, the wholesale price of mozzarella dropped 12%, 2008 versus 2009. Farm milk dropped 35%.

Buy Local

Ray Cross, President , SUNY (State University of New York) Morrisville State College has an interesting article in the January 15, 2010 issue of Farm shine, entitled "Buy local: Your health will thank you."

Above the headline is a caption, "Over 17 million shipments of imported food come into the country each year." Dr. Cross states, "What it all boils down to is this: Buying local is no longer just an issue of supporting our local economy -- it is a matter of health." Dr. Cross then focuses on China and the common pollutants found in China.

The article is good, and I have no disagreement with Ray Cross. I would like to do however, is to go one step further and ask why Americans are offered food from China?
The simple answer to the question is, "Agreement on Agriculture" which entered into force on January 1, 1995 with the establishment of the World Trade Organization. Our government, the United States of America, was an active force in bringing this about. Their so-called three pillars, the first is "domestic support", the second is “market access” and the third is export subsidies.

World trade is why the global financial meltdown is so huge. The food which Ray Cross talks about is not brought from China by Chinese farmers turned sailors, sailing the high seas in Chinese junks. The food is brought by multinational companies with the blessing of our government.

Does the government care? Apparently not.

We have seen a year of crisis and tragedy on American dairy farms. Does the government care? With very few notable exceptions, apparently not. The motivation appears to be the same whether it is trade or tragedy.

Expert Opinion

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Well, I've read it again. "Consumer confidence" is still "historically low." Many dairy experts have voiced the same opinion over the past year to explain low farm milk prices.

Take a look at the two graphs above. There you have graphic proof of what is known as "asymmetric price transmission", which is another way of saying market failure.

NASS & CME NFDM Prices 2009

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In October 2009, I mentioned the growing spread between NASS and the CME so-called "cash market."

Essentially, no loads are traded at the CME but, most of the time the two prices track, except when some sneaky deal is taking place.

It is nice to see that NASS has finally caught up to CME. But,having gone through a year of world financial crisis brought on the "big guys", one might think the policy formulators might, just might take a look for similarities to the financial meltdown. They could find it in dairy.

Butter UP

Today, January 15, 2010 the price of grade AA butter rose $0.105 per pound.

USDA reported earlier in the month, "Butter production was 121 million pounds, 9.7 percent below November 2008 but 6.9 percent above October 2009."

The World Agricultural Supply Demand Estimate, released on January 12, 2010 stated:

The milk production forecast is raised for 2010 reflecting the relatively slow pace of cow liquidation in late 2009. Commercial dairy exports for 2009 are adjusted reflecting stronger skim-basis sales, but slightly weaker fat-basis sales. Import forecasts are reduced for 2009. Trade forecasts are unchanged for 2010. Fat and skim-solids ending stocks are forecast higher for 2009. Ending stocks for 2010 are raised on a skim-solids basis but are lowered on a fat-basis. Forecasts of butter and cheese prices are lowered as milk production forecasts are raised. However, relatively strong international demand should support prices for nonfat dry milk (NDM) and whey. The 2010 Class III price is lowered from last month as lower expected cheese prices more than offset stronger whey prices. The Class IV price forecast for 2010 is raised from last month as stronger NDM prices more than offset weaker butter prices. The all milk price is reduced to $16.20 to $17.00 for 2010.

And one expert is predicting the possibility of NFDM/NDM moving to the government in the spring.

Confused?

NFDM Price Falls on CME

http://tvnz.co.nz/world-news/china-warns-milk-powder-imports-after-scare-3327992

Chinese imports of milk powder could rise to 40,000 tonnes in January, from 31,000 tonnes in December, the ministry said on its website. It warned importers to guard against possible losses due to oversupply.

December's imports included 5,000 tonnes of infant formula, while January was expected to include 3,000 tonnes of formula, it said. The ministry occasionally issues early warning reports to help avoid price crashes.

So, with the above story on January 12, 2010 and with talk of lowered production in NZ, wouldn't you know NFDM prices fell on the CME. Grade A fell 7 cents and Extra Grade fell 8 1/2 cents.

No actual loads changed hands. Nothing unusual there. In the first ten years of trading on the CME ONE load was actually traded. a few loads changed hands in 2008. What a sham.

Average

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http://www.istockanalyst.com/article/viewiStockNews/articleid/3775383

The article begins:

Why, one may wonder, is the Department of Justice launching an antitrust investigation against some of U.S. food system's major players at a time when Americans are enjoying a widening array of food choices and spending less and less of their disposable income to do so?

The article has all the depth of a mirror - merely reflecting another person's thoughts. The argument is simple, everyone is getting cheap food. However, there is cause for concern about the powerful, even if the food is nearly free.

But, as an academic, the writer fails intellectually. Food may appear to be cheap but, that is only so when you look at the average income. People do not generally receive average income (see above table by Saez).

Food at retail is rising virtually at the same rate as everything. If your income is at the top 1% level life is good. For most workers, including farmers, life continues to be a struggle.

I would worry if I had a child receiving part of an education from Sykuta.

Michael Sykuta is an associate professor in the College of Agriculture, Food and Natural Resources at the University of Missouri at Columbia and director of the Contracting and Organizations Research Institute. Readers may write to him at University of Missouri, 135 Mumford Hall, Columbia, Mo. 65211-6200 or e-mail him at sykutam@missouri,edu.

Corn

Today, January 12, 2010 USDA released its "Grain Stocks" report: http://usda.mannlib.cornell.edu/usda/current/GraiStoc/GraiStoc-01-12-2010.pdf

For corn the report says:

Corn stored in all positions on December 1, 2009 totaled 10.9 billion bushels, up 9 percent from December 1, 2008. Of the total stocks, 7.45 billion bushels are stored on farms, up 15 percent from a year
earlier. Off-farm stocks, at 3.49 billion bushels, are down 3 percent from a year ago. The September - November 2009 indicated disappearance is 3.89 billion bushels, compared with 3.64 billion bushels during the same period last year.

There are rumors floating which hold that USDA is counting "unharvested" corn as on farm stocks. So, no sooner was the report out than USDA announced:

Issued Jan. 12, 2009 by the Agricultural Statistics Board of the U.S. Department of Agriculture, National Agricultural Statistics Service. For more information contact Lance Honig at (202) 720-2127 or lance_honig@nass.usda.gov.

USDA’s National Agricultural Statistics Service (NASS) may release updated acreage, yield, production and stocks estimates for corn and soybeans in the March 10 Crop Production report. Previous estimates included in the Crop Production 2009 Summary released on January 12 were based on a sample of producers growing crops this past year.

When producers were surveyed in late November and early December, there was significant unharvested acreage of corn in Illinois, Michigan, Minnesota, North Dakota, South Dakota and Wisconsin; and significant unharvested acreage of soybeans in Georgia, North Carolina, South Carolina and Virginia. The unharvested area and expected production were included in the totals released on January 12.

NASS will re-contact respondents who previously reported acreage not yet harvested in these states. If the newly collected data justifies any changes, NASS will update the January 12 estimates in the March 10 report, except for South Dakota and North Dakota. Since the inclement weather has persisted in those two states, producers there will be re-interviewed at a later time.

Stocks estimates are also subject to review since unharvested production is included in the estimate of on-farm stocks.

Note the last sentence.

By the way the stock market was down, oil was down and corn was down. Why do they always travel in groups?

Times should be better for dairy

http://www.frbsf.org/publications/economics/letter/2010/el2010-01.html

There is a new federal reserve paper out at the above link. One of the more important things said is:

This Economic Letter shows that the recent U.S. experience is by no means unique. Household leverage in many industrial countries increased dramatically in the years prior to 2007. Countries with the largest increases in household leverage tended to experience the fastest rise in house prices over the same period. Moreover, these same countries tended to experience the most severe declines in consumption once house prices started falling. The common patterns observed across countries suggest that, as in the United States, the unwinding of excess household leverage via increased saving or increased default rates could be a significant drag on consumption and bank lending going forward, possibly muting the vigor of the economic recovery.

However, for dairy I think the recovery is here. The latest "Dairy Products" report shows, "Italian type cheese production totaled 363 million pounds, 6.5 percent above November 2008 and 0.6 percent above October 2009." More Italian type cheese is produced by far than Cheddar. Most is made and sold without extensive inventories. People have to be buying a lot of pizza.

Now all that is needed is to have a fair share going to dairy farmers.

Contact

Recently someone submitted a comment which really was an attempt to contact me. My emails pour in all day long, and my phone rings into the night. So, until I can find a secretary who will work for nothing, I am reluctant to post my email address.

Perhaps the best thing is to leave a comment for any post with just your contact information and I will try to get back to you.

To What End

http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4350

Raghuram Rajan is an economist with the Federal Reserve. The link above is an interview with him. In the introduction the interviewer sasy:

In August 2005 at the Kansas City Fed’s annual symposium in Jackson Hole, Wyo., Raghuram Rajan presented a paper filled with caution. Answering the question “Has Financial Development Made the World Riskier?” the University of Chicago economist observed that financial innovation had delivered unquestioned benefits, but also had produced undeniable risks.

“It is possible these developments may create … a greater (albeit still small) probability of a catastrophic meltdown,” he told the assembled central bankers and academics. “If we want to avoid large adverse consequences, even when they are small probability, we might want to take precautions.”

Obviously Rajan is not part of the herd. Within the interview he says:

Let me put it this way. There is always some amount of regulatory capture. The people the regulators interact with are people they get to know. They see the world from their perspective, and, you know, they want to make sure they’re in their good books. And so it’s not surprising that across the world, you have a certain amount of the regulators acting in the interest of, and fighting for, the regulated.

This sounds like dairy.

Then Rajan says:

I’d even go one step further and say you don’t have to offer an explanation that relies on evil people or corrupt people. The entire crisis can be explained in terms of people who were doing the right things for their own organizations. You can even argue that it was not that they were misdirected by their own distorted compensation structures; they thought they were doing the right thing for their organization. But when you added it all up, it didn’t add up to doing good for society. And that’s where we have the problems. ...

There is the problem with dairy policy. Dairy policy should not be simply to benefit the few at the expense of the many. Much of rural America in traditional dairy areas look like war zones. Then when you look at the "new" dairy areas, until 2009, there is the upscale lifestyle of the owners surrounded by massive unemployment and poverty.

The discussion of dairy policy is muted to the point of inaudible because one side or another thinks their ox is being gored. I would suggest dairy needs to be a situation in which all are winners.

Money for the needy

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In the last post I provided a link to the Senate Ag Committee Subcommittees. There are several people on those subcommittees who really could do something about the present, and need I mention, ongoing, dairy crisis.

If you look at the snips above (courtesy of Open Secrets), the function of money is obvious. The top graph is to the Senate Ag Committee. However, the money coming from the health industry absolutely overwhelms money from the dairy industry.

Logically, the big money gets the attention and as long as the milk and dairy products are on the shelves at reasonable price,then let sleeping dogs lie. Maybe dairy will take care of itself?

People who could really do something

http://ag.senate.gov/site/subcmtes.html

"Subcommittee Assignments for the 111th Congress"

Click on the link and read about the responsibility of these subcommittees. Any one could be doing something for dairy other than holding hearings.

Fonterra Upbeat

http://www.stuff.co.nz/business/industries/3210325/Fonterra-upbeat-about-future-prices

International demand outside China for dairy product is showing signs of strengthening and a dip in Fonterra's latest global internet auction price is not a concern, analysts say.

Fonterra is upbeat for the first time after months of warning about international market fragility.

Fonterra global dairy trade manager Paul Grave said even with yesterday's 7 per cent fall in average whole milkpowder auction prices, prices were "very high by traditional standards". "Historically they are excellent, which is very positive."

The article continues without mentioning the anhydrous milkfat auction outcome - up over 4%. Adjust to butter the U.S. butter price should be in the $1.65 per pound range.

Keeping on Keeping on

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I, on the one hand, continue to be amazed more dairy farmers have not thrown in the towel, on the other hand, the reason is obvious as the above graph shows. There is a dramatic fall in alternative opportunities.

USDA Dairy Industry Adisory Committee

http://www.ams.usda.gov/AMSv1.0/DairyAdvisoryCommittee

So, what do you think?

Apples to Apples

Several people have contacted me regarding:

World block Cheddar cheese is selling around $2.00 per pound right now. I ask Ledman how that squares with the U.S. price at $1.45 and she pointed out that the Cheddar sold at the Chicago Mercantile Exchange can include up to 39 per cent moisture. The global market trades in 35 percent moisture so we’re not comparing apples to apples when we look at CME prices versus world market levels.

http://www.dairyline.com/news-main.htm#Market%20Analysis%20with%20Mary%20Ledman1

The NASS survey from 12/31/09 covering the period November 28, 2009 through December 26, 2009 has an average for the five weeks of 35.172% moisture. Those processors surveyed by NASS take their price signals from the CME - they do not adjust moisture to 39%. That is fairly bad cheese.

USDA is fond of pointing out they do not use CME - they use the NASS survey. The NASS survey is the same as the CME except for a time lag of a week to ten days.

Money Maker

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Recently I posted some information on NAIS tags http://www.etattootag.com/

A reader drew my attention to the price on bottom of the page - shocking.

Government Aid

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A couple hundred years ago, economics was know as political economics. In spite of some long held beliefs, government has always helped business, as in giving railroads land, building airports and, I maintain creating the present dairy dilemma.

One graph is from a presentation given to the American Economic Association meeting in Atlanta. The entire presentation can be seen here: http://baselinescenario.files.wordpress.com/2009/09/recovery-and-crisis-presentation-for-glab-sept-14-2009.pdf

As Simon Johnson suggests, a new crisis is on its way. I would suggest the same could be said for dairy. There are too many people on the gravy train for government to get ahead of the impending crisis.

Bernanke

Today, January 3, 2010, Federal Reserve Chairman Bernanke gave a speech which can be found at: http://www.federalreserve.gov/newsevents/speech/bernanke20100103a.htm#fs10

This may seem like dry reading but, don't forget, the low farm milk price level is blamed on the financial crisis.

Bernanke certainly wants to paint the Fed in the kindest of light rest of the worlds'. Many countries were following the U.S'.lead in monetary policy, so when he compares the figures of the of the world, this has to be taken with a grain of salt.

He states:

"The lesson I take from this experience is not that financial regulation and supervision are ineffective for controlling emerging risks, but that their execution must be better and smarter."

He could have been talking about dairy regulation and supervision.

The Aughts

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The Washington Post has an interesting article at:

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/01/AR2010010101196.html

There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.

Antitrust Issue?

Go to:

http://www.etattootag.com/

Click on the link at the bottom left. NAIS, it is hard to tell the difference between the government's business and the business' government.

As Adam Smith, the so-called father of Capitalism wrote in 1776:

To widen the market and to narrow the competition is always the interest of the dealers ... The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted, till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

The Wealth of Nations, Book I Chapter XI

Wealth

This may not seem to have anything to do with dairy until you think of the time frame:

Is Our Tax System Helping Us Create Wealth?, by David Cay Johnston, Commentary, Tax Analysts: ...We have data on the 400 highest-income taxpayers only from 1992 to 2006, and then only thanks to Joel Slemrod of the University of Michigan and others who had these data analyzed, and the Obama administration, which overturned the George W. Bush policy of treating the data as a state secret.
[B]ecause of a quirk in the Statistics of Income report for [1961, it is] easy to compare those at the very top with the bottom 90 percent of Americans. ...[I]t turns out that in 1961, the top income category [had] 398 taxpayers... So by comparing the average income of the top 398, and the taxes they paid, with 2006 dollars, we can compare how people at the apex of the economy were doing 45 years apart. And then by looking at the bottom 90 percent of taxpayers in 1961 and 2006, we can compare the very top with the rest of taxpayers.
The vast majority of Americans saw their incomes rise only modestly in those 45 years. Measured in 2006 dollars, the average income of the bottom 90 percent grew from $22,366 in 1961 to $31,642 in 2006. That is a real increase of $9,276 in average income. But it was also after 45 years, longer than the careers of most workers. ...
For the vast majority, federal income taxes declined. In 1961 these people paid on average 9.6 percent of their income to the federal government. By 2006 this burden had been cut to 7.2 percent. That tax rate reduction saved each of these taxpayers about $760...
That tiny increase in pay does not represent a real increase in wages, only total income. That is because in the middle of that 45-year era, a profound transformation took place in America. In 1961 most families lived on one income, maybe supplemented by some part-time work by the wife... Now two-income households are the norm. ...
America grew and grew during this era. GDP, adjusted for inflation and increased population, was up 227 percent. But wages and fringe benefits did not grow with the economy. For most workers, they fell. Wages peaked way back in 1972-1973, were on a mostly flat trajectory for more than two decades, rose briefly in the late 1990s, and then fell sharply in the new century. ... Millions are out of work, and the jobs they once held are ... not coming back. And even if the Great Recession is coming to an end, we face years of jobs growing more slowly than the working-age population, which could radically transform America’s culture, work ethic, and sense of progress.
In 2006 families worked on average about 900 more hours than families did in the 1960s and early 1970s. That is a roughly 45 percent increase in hours worked... For many, the reality is that two jobs produce the same or a smaller after-tax income than just one job did three and four decades ago. ...
During the 45 years starting in 1961, payroll taxes have gone from a minor levy to almost a sixth of wages for the bottom 90 percent of American households. This $760 in income tax savings that the average taxpayer enjoyed in 2006 was taken back, and more, by the increased tax rates for Social Security and Medicare. Those rates rose from 3 percent withheld from pay in 1961 to 7.65 percent in 2006. Not all income is from wages, of course, but those higher payroll taxes wiped out the seeming reduction in the income tax and more. ...
And at the top? Now, that’s a different story. The average income for the top 400 taxpayers rose over the 45 years from $13.7 million to $263.3 million. That is 19.3 times more.
The income tax bill went up too, but only 7.8 times as much because tax rates plunged. Income tax rates at the top fell 60 percent, three times the percentage rate drop for the vast majority. And at the top, the savings were not offset by higher payroll taxes, which are insignificant to top taxpayers. ...


This combination of explosive growth in income and a 60 percent cut in effective tax rates meant that average after-tax income rose to $210 million in 2006, compared with $7.9 million in 1961. ..
Without a doubt, the much lower tax rates at the top encouraged people to realize more income in the tax system. And if the only measure is that some people made more, then this would be a good. But let’s ask the question that the classical economists would have asked back when they were known as moral philosophers and their leaders spoke of policies that benefited the majority. Let’s go back to a time before Vilfredo Pareto’s observations began what is the overwhelmingly dominant orthodoxy today, neoclassical economics with its focus on gain.
What is the social utility of creating a society whose rules generate a doubling of output per person but provide those at the top with 37 times the gain of the vast majority? ...
Is a ratio of gain of 37 to 1 from the top to the vast majority beneficial? Is it optimal? Does it provide the development, support, and initiative to maximize the nation’s gain? Are we to think that the gains of the top 398 or 400 taxpayers are proportionate to their economic contributions? Does anyone really think that heavily leveraged, offshore hedge fund investments are creating wealth, rather than just exploiting rules to concentrate wealth, while shifting risks to everyone else?
Under the overwhelmingly dominant economic theory of today, this is all good. Pareto argued that if no one was harmed, then all gain was good. Carried to an extreme, neoclassical economics would say that if the bottom 99.9999997 percent had the same income in 1961 and 2006, and all of the gain went to the one other person in America, that would be a good. ...
Is our tax system helping us create wealth and build a stable society? Or is it breeding deep problems by redistributing benefits to the top while maintaining burdens for the rest of Americans?
Think about that in terms of this stunning fact teased from the latest Federal Reserve data by Barry Bosworth and Rosanna Smart for the Brookings Institution: The average net worth of middle-income families with children whose head is age 50 or younger, is smaller today than it was in 1983.

[Note: Tax Notes is a weekly 100-or-so page publication with no ads that is entirely supported by subscribers, as are State Tax Notes and Tax Notes International. It is put out by nonprofit Tax Analysts, to whom we owe a great deal for fighting for almost 40 years to strip away the secrecy behind taxes. David Cay Johnston's column appears every other Monday.]

http://www.taxanalysts.com/

New Year

First off, Happy New Year. May 2010 be better.

I regularly look a a financial blog "Calculated Risk." Many of the vast numbers who look and comment on the blog are really well informed.

The above graph, in which 4518 people participated, does not bode well for the economy in general.

Dairy farmers took, I feel, a needless hit in 2009. If 2010 proceeds as the above graph assumes, the conditions remain to take further from the farmer's hide.

There is no need to point out Senator Bernie Sanders was an exception to DC normality.

The big push will be for the next farm bill. The usual suspects are already at the table.