Monday, December 13, 2010
Eye of the Beholder
(click on image to enlarge)
A commenter complained on Saturday's post that I had not taken ethanol subsidies to task. Ethanol certainly has driven up dairy farm feed costs, adding to other dairy farm concerns.
We truly need fair market prices for all farm products - not subsidies. But, dairy farmers have benefited from subsidies to grain farmers. As can be seen from the graph above corn farmers have lost money most every year. There would be no corn for dairy farmers without subsidies.
Many U.S. dairy farmers feel the Canadian farm milk pricing system is not market oriented. However, a recent study from Canada by, Peter Clark, president of Grey, Clark, Shih and Associates Limited. found U.S. dairy farmers are heavily subsidized. The study, according to a press release found, "U.S. federal, state and local governments continue to subsidize their agriculture industries with a labyrinth of programs that are conservatively estimated at over US$180 billion in 2009 and representing well more than half of total U.S. farm gate revenues of US$290 billion."
The release stated, "In summary, the subsidies to U.S. dairy producers are essentially equivalent to revenue the industry receives from the market place. This generous support enables U.S. producers to sell below their fully absorbed cost of production by insulating them from the need to earn a profit from the market. The support also permits insulation from international price pressures."
The selling price for a product, according to the dictates of capitalism, is costs plus profit equals selling price. The CME trading flies in the face of capitalism.