Saturday, August 7, 2010

Some Things Are More Difficult

(click on images to enlarge)

Note: I did not create either graph. The first is by USDA and the second is by Mark Stephenson (presented at a FMMO hearing July 9, 2007 Pittsburgh, Pa)

I will have to admit, I do not get why some people think the prices reported by NASS plants are somehow different from the CME. Yes each NASS plant "negotiates" with customers, but it is alway, always, CME plus a little insignificant sliver.

So, to me, it is difficult to imagine any improvement might be obtained with more frequent reporting (even if not delivered by pony express).

What I do get is the "make allowance" which is taken from the NASS price to arrive at "farm value." NASS and the make allowance were brought about to hide the fact that the same crooks were setting farm milk price.

The make allowance is fixed by regulation. Built into the make allowance is a return on investment (ROI). Above shows the breakdown for NFDM at 9% ROI. Cheddar is 8%. All in all a pretty good return in this day and age.

On the internet, I see "money market account" returns of .74% - few even have the money to put in a MMA. If a child set up a lemonade stand and invested the proceeds, in ten years, the ingredients for the lemonade would cost more than the money in the account.

1 comment:

  1. I agree that the talk about moving to a competitive price is a fallacy, there just isn't any competition. All cheese is priced by the CME. An article by Paul Christ and Dan Smith points to research by USDA to show that there is competition in many areas. I would be interested to see what kind of premiums there are excluding class usage and components. Keep in mind that under this new competitive price we would no longer have a minimum price and when you hear market clearing hang on for a wild ride to $5.00 milk.