Entrepreneurship

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After WW II there was a massive amount of people who needed employment. The GI Bill provided many opportunities, including farm loans. So, many people went into farming, including dairy farming, a form of entrepreneurship.

There is a new report out from the Cleveland Federal Reserve Office: http://www.clevelandfed.org/research/commentary/2011/2011-04.cfm

Between December 2007 and June 2009, the United States suffered its biggest economic downturn since the Great Depression. Dubbed the Great Recession, this economic contraction saw gross domestic product decline 4 percent and the unemployment rate more than double from 4.9 percent to 10.1 percent.

While the media was full of reports about how the recession affected big business and consumers, it was largely silent on what happened to entrepreneurship. Economists are divided on the matter.

Some believe that recessions have no effect on entrepreneurial activity, arguing that the negative effects of reduced demand are offset by the increased motivation to have one’s own business as a protection against layoffs.

Others believe that the Great Recession actually brought about an upswing in entrepreneurship, as the downturn pushed laid-off workers to pursue their entrepreneurial dreams. A press release announcing a recent report from the Ewing Marion Kauffman Foundation, for example, went so far as to argue, “Rather than making history for its deep recession and record unemployment, 2009 might instead be remembered as the year business startups reached their highest level in 14 years—even exceeding the number of startups during the peak 1999–2000 technology boom.”

Unfortunately, a careful look at the data suggests otherwise. Multiple sources of government and private data show that the Great Recession was actually a time of considerable decline in entrepreneurial activity in the United States.

(full report at link)

The report concludes, "By most available measures, the Great Recession’s effect on entrepreneurship was negative."

Although the report offers no explanations, it would seem to be obvious that the climate favored big over small businesses.

Agricultural Prices

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Today, March 30, 2011 USDA published its "Agricultural Prices" report: http://usda.mannlib.cornell.edu/usda/current/AgriPric/AgriPric-03-30-2011.pdf


Above is the all milk price for most states. Note, there appears to be quite a spread in butter fat test. California is mostly giving milk away. Note also, the hay prices on page 23. these seem to be lower than many reports but, California is not getting free hay.

On page 30 note, the "All Milk Price" for March 2011 is 46% of parity. Some say dairy farmers have received a signal to produce more milk, the signal never goes away.

Somewhat Less Than Exciting News

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Today Dean Foods settled with the U.S. Department of Justice and State AG's regarding Dean Foods' purchase of Foremost Farms fluid milk plants.

Just who might be willing to purchase the plant is a riddle. Between the likes of Dean and Wal*Mart, there is not a lot of profit in fluid milk.

World Butter Trade

e

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Looking at the graph above could be misleading. While it is true world trade of butter has fallen, the U.S. export volume has grown. In 2009 the U.S exported 22,827 metric tons of actual butter (HTS 040510). In 2010, the U.S. exported 45,557 tons. In January of 2011, there was an increase of 35.4% in butter exports.

The lesson here is most legislation regarding dairy will have world trade and globalism leading the way. This will not necessarily be a winning ticket for U.S. dairy farmers.

Dire Warning

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Word from New Zealand about future dairy price seems grim: http://www.stuff.co.nz/business/4814594/Futures-point-to-dairy-price-sag

"New Zealand's run of strong dairy prices could be ending with the price of contracts on the NZX's Dairy Futures market sagging as 2011 progresses.

Releasing its half-year results this past week, Fonterra announced 2011 was shaping up as one of the best ever in terms of returns to its farmer shareholders.

However, prices on the NZX's new futures market, which is starting to see solid growth in trading, ebbs from $US4205 ($5600) for contracts maturing in March to $US3885 from October onwards, a drop of nearly 8%."

(more at link)

So, what is NZX's "Dairy Futures" market: http://www.nzx.com/about-nzx/4224534/NZX-Dairy-Futures-record-first-trade

"NZX Dairy Futures traded for the first time today. Ten lots of the October 2010 Global Whole Milk Powder future traded at US$3,525/t. NZX Dairy Futures launched on 8 October.

During the first two days of operation there were up to 30 lots on offer in each of the front seven expiry months, which represented 210 lots total volume on offer with a US$792,000 notional value.

“We're confident that demand for NZX Dairy Futures will continue to build, and we look forward to welcoming additional participants to the market in the near term,” said NZX Head of Markets Fiona Mackenzie.

The NZX Dairy Futures market is an anonymous market and the firms making individual trades are not disclosed."

NZX has gone from 10 trades in October 2010 to 20 trades in February 2011 - pretty exciting (see above). OK 20 trades in February but, no indication as to the number of traders? Maybe there are five traders or maybe ten or maybe just the ruler of Oz.

We do need to firm up the meaning of market because at this point it seems to be just the will of those with power.

Ethanol Futures

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Here is a story from Bloomberg on ethanol futures: http://www.bloomberg.com/news/2011-03-25/ethanol-futures-decline-as-corn-falls-on-global-demand-concern.html

The March 25, 2011 article begins:

Ethanol futures declined in Chicago as corn dropped on concern global demand for the grain may wane.

The grain-based additive followed corn lower on speculation consumption from Japan could suffer as the country battled to avoid a meltdown at its Fukushima plant and as unrest swept across the Middle East and Africa. Ethanol is made from corn in the U.S.

“Ethanol was hampered by the volatility in corn, particularly in the physical markets, with both sides of the market unable to stick to numbers as prices whipped around,” analysts at SCB & Associates LLC wrote in a note to clients.

Look above at the Commodity Futures Trading commission (CFTC) "Commitment of Traders" (COT)report has to say. Talk about a thin market? One can only infer those traders have a lot of pull in Washington D.C.

Food Costs

USDA ERS has released projections on the rise of food costs: http://www.bloomberg.com/news/2011-03-25/usda-retail-food-inflation-forecasts-for-2011-text-.html

The article begins:

Following is the text detailing forecasts for percentage changes in annual food prices, according to the U.S. Department of Agriculture:

Food Price Outlook, 2011

In 2011, the Consumer Price Index (CPI) for all food is projected to increase 3 to 4 percent. Food-at-home (grocery store) prices are forecast to rise 3.5 to 4.5 percent, while food-away-from-home (restaurant) prices are forecast to increase 3 to 4 percent. Although food price inflation was relatively weak for most of 2009 and 2010, cost pressures on wholesale and retail food prices due to higher energy and food commodity prices, along with strengthening global food demand, have pushed inflation projections for 2011 upward.

(full text at link above)

There really is another important aspect to food costs which is rarely discussed. Writers tend to point out how food costs to Americans is less than 10% of income. Averages hide a lot of essential details.

If you divide incomes into 5 groups (quintiles)and then look at the data, the richest 20% spend about 4% of their income on energy and another 4% on food. For the bottom 20%, the picture is quite different. The poor spend 20.6% of their income on energy and a total of 23.5% on food.

To make matters worse, the poor buy from the middle of the store where all the carbs and filler foods are on display. Then there is the problem of further obesity.

There was a time when the poor, particularly the rural poor, could cook good meals from a few cheap ingredients, such as dry beans. But, cooking takes time and the working poor are working too many hours to spend a lot of time in food preparation.

We are becoming more of a two class nation and failing to examine underlying causes.

Dairy Boat to Japan

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As noted in the last post, we import no dairy products from Japan. The boat going the other way is a different story, as seen above.

The above table shows dollar values, which makes exports of cheese appear much larger than exports of whey. Japan is a very large customer of whey products from the U.S. The total volume is more than twice the volume of cheese.

Japan is understood to be actively looking to more dairy products.

SAFE

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While it makes good news to say we have cut off dairy imports from Japan, it all amounts to saying we have done something, when in fact, we have done nothing.

How Milk is Priced?

http://www.3news.co.nz/Fonterra-rejects-calls-for-inquiry-into-milk-prices/tabid/421/articleID/203714/Default.aspx

Fonterra, oddly enough, is claiming they have nothing to do with milk - it is the "market." Sound familiar?

Fonterra is rejecting calls for an inquiry into how milk prices are set.
The company says prices are set as part of a normal commercial process and that New Zealanders have to get used to being part of the global market.

(complete story at link)

Here in the USA:

http://www.fsa.usda.gov/FSA/webapp?area=about&subject=landing&topic=dia

The purpose of the Dairy Industry Advisory Committee is to review the issues of farm milk price volatility and dairy farmer profitability and provide a report with recommendations to the secretary on how USDA can best address these issues to meet the dairy industry’s needs in the near and long term. The report also will provide feedback on the effectiveness of recent actions taken by USDA affecting the dairy industry. USDA’s Dairy Industry Advisory Committee brings the concerned public into a productive, information-gathering process to assist in developing recommendations for the development of national dairy industry and trade policies.

Aside from providing a cure for insomniacs, what was accomplished?

Pay no attention to the guy behind the curtain.

Cold Storage

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Today the "Cold Storage" data was released: http://www.usda.gov/nass/PUBS/TODAYRPT/cost0311.pdf

On page four one can read that the total American Cheese at the end of February 2011 when compared end of January 2011 is 98%.

But, when you look at the individual areas, it looks more like 90%. See graph above.

Depooled Milk

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Today was a really big day on the CME - 26 loads of blocks traded. No big changes in players. The charades do not end at the CME, however.

Note above the information from Dairy Market News. Note footnote 3 and the amount of milk depooled from four federal orders. That is another way of saying the dairy farmers in those orders did not see the full value of their milk which went into Class III.

Other Factors

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Friday USDA released "Milk Production" data for February 2011: http://usda.mannlib.cornell.edu/usda/current/MilkProd/MilkProd-03-18-2011.pdf


For the entire U.S. production was up 2% over February 2010. There were five states with production increases more than five percent. That is where it starts to get odd.

Two states separated by one river Kansas and Missouri were worlds apart on production. Both received the same basic price signal. Both states must have had similar weather.

Could it be other factors?

Japan

Dairy exports to Japan are, for the moment, in limbo. The key word is uncertainty about how much food was damaged, and for lack of a better term, how much "demand" has been lost.

Japan is a major importer of whey products, including de-proteinized whey, which is used as pig feed. Japan imports 60% of its food.

A story on Japan and its food supply is at:http://www.blogger.com/img/blank.gif

http://www.dtnprogressivefarmer.com/dtnag/common/link.do;jsessionid=6726D805ABD5C9E4469807467DCDC947.agfreejvm2?symbolicName=/free/news/template1&product=/ag/news/topstories&vendorReference=0353b2fa-34a2-481b-912d-1cb46058ad3a&paneContentId=70109&paneParentId=70043

Import assessment

http://www.gpo.gov/fdsys/pkg/FR-2011-03-18/pdf/2011-6322.pdf

The core:

The 2002
Farm Bill mandates that the Order be
amended to implement an assessment
on imported dairy products to fund
promotion and research and to add
importer representation, initially two
members, to the National Dairy
Promotion and Research Board (Board).
The 2008 Farm Bill specifies a
mandatory assessment rate of 7.5 cents
per hundredweight of milk, or
equivalent thereof, on dairy products
imported into the United States.


The money is going to a good cause:

http://themilkweed.com/Feature_11_Mar_1.pdf

Cheese Production

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A reader commented on yesterday's post:

I'm sure this was unintentional, but if you take only the milk going into Class III and then divide it by the cheese produced in the US, that number would have no relevance. Idaho and California are #2 and # 3 in cheese production in the US and are not in any Federal Order, so counting their cheese lbs in your calculation, but leaving out their milk lbs. wouldn't be a relevant way in which to determine the amount of cheese that should have been produced in the US. I'm sure it was an oversight, but if you do include ID/CA milk lbs. the number makes perfect sense. Cheese standards are enforced, and constantly questioning the quality of our cheese without any real basis will only cause the uniformed to decide not to consume our cheese, now that wouldn 't be good for cheese sales, would it???
Your more relevant comment above John, which you seem to ignore, is that "$1.65 cheese prices don't work with current input costs" Your right on that one, but it's not the cheese markets' fault, it's the feed price, directly caused by our nations Ethanol Policy, why don't you focus more on that, than on inaccurate and statistically flawed numbers, wouldn't that make more sense, and be more productive?

Actually I did consider national milk production. As can be seen above, official data from CDFA for Cheddar is very close to my estimate.

Hard cheese production in 2006 was 3,912, 670, 000 pounds in 2009 the amount was 4, 200, 500, 000 pounds. Data on the use of NFDM going into hard cheese is tracked by ADPI. In 2006 561 million pound went into hard cheese. In 2009, the last year of available data from ADPI, the amount of NFDM going to hard cheese was 398.9 million pounds.

So, it is reasonable to conclude cheese standards are "not" being enforced.

The real dirty tricks are done inn the "pizza cheese" vat.

Keeping quiet about all this is in no one's best interest.

I realize ethanol production raises costs to dairy farmers but, rather than complain about what other farmers are getting, dairy farmers might go a little easy on the grain scoop

But, we come back to the same thing. Under capitalism, selling price should equal costs plus profit. In dairy, capitalism has failed to follow its own dictates. Dairy needs a real market.

Once Again

Today block cheddar fell $0.105 on the CME. One insider I spoke with today thinks the bottom will be $1.65 per pound.

Dairy farmers cannot make it on $1.65 block price, given current input costs.

If there is too much cheese, the answer is simple. If you take the amount of milk going to Class III in the federal orders and translate that to nation milk production. Then take that amount times ten pound per hundredweight yield, there is 36% more cheese made in the U.S. given the amount of milk going to cheese.

We need enforcement of cheese standards - plain and simple. The "problem"will then go away. that is, providing the "problem" is too much cheese.

Prices Fall Again

Prices fell again today on the Chicago Mercantile Exchange, with no new information evident.

Prices also fell on Fonterra's globalDairy Trade internet auction. There is a bit more sense to that. Japans is New Zealand's fourth largest customer. Prices fell the most for the nearby sales.

On March 4, 2011 Dairy Market News stated:

... supply availability, or lack of, is now driving the market. Often, supplies have been
fully committed early on in the milk production season and manufacturers and handlers are now trying to meet those commitments with minimal volumes of spot availability being reported. International buyers are very active in the marketplace looking for
needed volumes and are having to reach beyond Oceania sources.

New Zealnad's climate authority stated today: "By the end of February soils were very dry in parts of the southern North Island and northern South Island."

Derry Brownfield

Derry Brownfield passed on. He always called the shots as he saw them. He will be missed.

For those interested in sending a card to the family:

Verni Brownfield and Family

P. O. Box 79

Centertown, MO 65023

Market Fiction

Can a market be defined. No, a market is more a notion than a fact. Many, maybe most, think they know exactly what a market is. Ten people will give you eleven opinions.

Today's spot dairy trading on the Chicago Mercantile Exchange (CME) is a case in point. Block Cheddar fell $0.135 to close at $1.88, a drop of 7 per cent. April Class III futures fell -$0.75.

If there was any evidence of new players running on the the trading floor with new breaking news, it would be one thing. But, it appears to be the usual gang of thugs.

Without significantly different players, what can be said, positively, about the quality of information the main players hold?

globalDairy Trade Auction Expanding

http://www.globaldairytrade.info/public/english/090311%20MEDIA%20RELEASE%20-%20FONTERRA%20ANNOUNCES%20EXPANSION.pdf


Fonterra is expanding globalDairyTrade, the online dairy products trading platform, to include products from other companies.

At this point the rules governing trading are still being finalized. Arla Foods and FrieslandCampina from Europe; California Dairies and DairyAmerica from the West Coast of the USA; and Murray Goulburn from Australia have all had input to the rulemaking and will likely participate when the expanded auction commences.

World prices have tracked higher than U.S. powder prices. The real question is what will this do to the calculation of U.S. dairy farm price? For sure NASS will not survey the internet auction held by Fonterra.

The Product The World Wants?

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Milk powders are essentially a protein product. For a number of years, dairy experts have complained about the price support system getting in the way of producing the product the whole worlds wants, milk protein concentrate (MPC). However, the data when distilled shows why there have been rumors of MPC plants losing money.

Canada

Canada's Federal Court of Appeal, on February 28, 2011 rejected an appeal from cheesemaking giants Kraft Canada and Saputo against federal regulators' compositional standards for cheese. The court also required Kraft Canada and Saputo to pay court costs.

The Canadian Food Inspection Agency claimed the win for official Ottawa as per a ruling handed down by Justice Robert Mainville, who dismissed Kraft and Saputo's joint appeal and awarded costs to the government.
Specifically, the new regulations require that cheese imported into Canada or produced in Canada and marketed in international trade or enter provincial trade must have:

a. a certain percentage of casein content derived from liquid milks, and not from other milk products such as weight cream or milk powder (the "Casein Ratios"); and

b. a whey protein to casein ratio that does not exceed the ratio of whey protein to casein ratio of milk (the "Whey Ratio").

Kraft Canada and Saputo argued the essential or dominant purpose of the regulation amounted to an economic transfer in favor of dairy producers to the detriment of dairy processors by requiring the use of additional liquid milk in the production of cheese which would result in "substantial impact on milk supply cost for dairy processors."

The lead witness for the processors in testimony given in 2008 to the House of Commons Standing Committee on Agriculture and Agri-Food, stated, "so we've been able, through the use of technology, to reintroduce the whey protein concentrate into cheesemaking to the benefit of the industry. It reduces cost, and there are more efficiencies, and so on."

The courts factual findings “seriously undermine the appellant's assertions.” The court found that the regulations, "address consumer expectations and interest as to the composition of cheese."

In addressing consumer expectations the court relied on the testimony of a Mr.Wathier, and experience Master Cheese Maker and cheese Judge:
Mr. Wathier, a Master Cheese Maker at St. Albert with four decades of experience in the industry, including experience as a cheese Judge and as a consultant to the applicant Parlamat, gave evidence concerning the impact of using milk derivatives on cheese quality. His evidence was that even small quantities of milk derivatives (up to 5%) could affect the taste, texture, and consistency of cheese compared to cheese made with fresh milk. The process of converting fresh liquid milk into a powdered milk derivative has an immediate impact on the taste, which is one of the reasons why, for example, consumers gravitate away from skim milk powder."

Although America has cheesemaking standards which prohibit the addition of various yield enhancing technologies, America has steadily suffered from what can be described as regulatory drift.

Uncertain Times

Anyone who thinks everything is just fine should look at the trading on the Chicago Mercantile Exchange (CME). And it is not just dairy.

http://cmegroup.mediaroom.com/index.php?s=43&item=3119

CME Group, the world's leading and most diverse derivatives marketplace, today announced February volume averaged 14.7 million contracts per day, up 17 percent from February 2010, and up 19 percent from January 2011. Total volume for February was 279 million contracts, of which 83 percent was traded electronically.

Class III milk future volume for February 2011 is up 82% when compared with February 2010. Makes the rest of the trading, on a percentage basis, look pretty slim.

NMPF's Elevator Down

NMPF released a some news about its Foundations For the Future program on March 8, 2011. The headline reads:

"NMPF Board of Directors Approves Proposal to Improve Federal Milk Marketing Order System as Part of Foundation for the Future Program"

The first paragraph states:

The National Milk Producers Federation’s Board of Directors agreed today to support a series of major reforms in the Federal Milk Marketing Order program, intended to renovate the economic structure of the U.S. dairy sector. The changes will be packaged as part of the Foundation for the Future program that NMPF has been developing during the past 18 months.

"Renovation" by definition means an improvement. However,no one can say with a straight face the dairy farmer's situation will be improved by this plan. The details are sparse but...

http://www.futurefordairy.com/pdfs/NMPF-FFTF-Narrative.pdf

On page 22:

• Institute a new Class III price that would be a competitive pay price and no longer be maintained as a minimum price. The competitive pay price would be based on regional surveys of both regulated and unregulated proprietary cheese plants
processing a minimum of 500,000 pounds of milk a day and covering all varieties
of cheese

Scary. No minimum price?

Nice words though "competitive pay price." What a way to push buttons.

NMPF either does not understand economic organization or they hope no one else does.

World Food Situation

United Nations Food and Agriculture Organization (FAO) tracks the world food situation at: http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/

The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices (representing 55 quotations), weighted with the average export shares of each of the groups for 2002-2004. In February, FAO revised the composition of the Meat Price Index. This resulted in adjustments to the historical values of the FFPI.

(more information at link)

Dairy is clearly rising to a greater extent than some other foods.

Howrey

There are two large class action, on behalf of dairy farmers, lawsuits which the law firm Howrey (http://www.howrey.com/home.aspx) is a player.

The bigger one, is in Tennessee. Howery has, according to sources, some $15 - 20 million invested. Who would have thought a firm so big and so seemingly successful could fail?

The death knell for embattled BigLaw Howrey could ring as early as this week with firm partners reportedly set to vote on winding down its operations.

Howrey's troubles began last year as the firm witnessed the biggest job losses/layoffs - 159 - according to Law Shucks.

Read more: http://www.ibtimes.com/articles/119667/20110307/death-knell-for-biglaw-howrey-ringing.htm#ixzz1Fy5b8TmI


I have heard some diminished form of Howrey will continue for a while. I have also heard the law suits will continue with the same team of lawyers at another (unnamed) firm.

Double Agent?

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Dennis Wolff is the former Pennsylvania commissioner of agriculture. Presently, he is a lobbyist and partner of Versant Strategies. http://www.versantstrategies.net/about/

Versant states:

“Versant” means "having good knowledge of,” and no word could better suit Pennsylvania’s premier public affairs firm specializing in agricultural and rural issues. Versant knows that today’s public policy questions are no longer cut-and-dried, but instead are interconnected and complex.

Versant's lists its clients, which includes "Dairy Policy Action Committee" DPAC.

http://www.versantstrategies.net/clients/

A number of people have had faith in DPAC but...another client not listed on Versant's site is International Dairy Foods Association (IDFA) the dairy processor's organization.

However, the Open Secrets site reveals the truth:

http://www.opensecrets.org/lobby/lobbyist.php?lname=Baker%2C+Meecee&id=Y00000000770&year=2010

The real question is "having good knowledge of,” what? This is not a case of full transparency. Too bad.

Constant Struggle for Price

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Above is part of an article from the NY Times printed in 1882:

http://query.nytimes.com/mem/archive-free/pdf?res=FB0D17FB3D5511738DDDAF0994DB405B8384F0D3

There are now less than fifty dairy farms left in Orange County, NY. The Hudson Vally region lost 48% of its dairy farms between 2002 - 2007.

Another article which appeared in 1884 said the standard for milk from farms was 8% butter fat.

New York City was the first city in the country to mandate 1% or less milk in schools. I will guess obesity was not a problem among school children in the 1880s.

Myths Live Forever

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http://www.fsa.usda.gov/Internet/FSA_File/diac_final_rpt_0302.pdf

In the DIAC report is a common myth"

"To offset surpluses generated by aggressive support price policies of the late 1970s, from 1981 21 to 1990, dairy markets were affected by a variety of significant government programs, including large 22 product purchases and two new, temporary supply management programs."

Page 14

So, if price drives production and government purchases, why did government purchases drop off after the price to farms fell to next to nothing?

DIAC Final Report to Vilsac

The Dairy Industry Advisory Committee (DIAC) has sent its report to Vilsac. 23 Dairy Policy recommendations follow the summary. Votes are indicated for each.

Link to the entire 106-page report at: http://www.fsa.usda.gov/Internet/FSA_File/diac_final_rpt_0302.pdf

Information Age

At Oxford University an exam is given every year which might result in a scholarship for three people, The test is described as the toughest test in the world.

Applicants take four examinations of three hours each, and in the two general subject tests must answer three questions from a list. Below is part of the list from the 2005 - 2010 exams:

What is war good for?
From where does a sense of community come?
Are there too many accountants and auditors? Is there anything to be said for astrology?
Why should I tolerate?
Is exile always a misfortune?
If there are millions of other planets capable of supporting advanced life-forms, why haven’t we seen or heard from them?
Is dark energy more interesting than dark matter? What do extremes in dress and personal adornment signify?
Do historical novels harm historical study?
Has there ever been a period that was not an information age?

Out of this partial list of what appear to be simple questions, the last one grabbed my attention.

The present time is often called the "information age." But, is it really information or just data?

One example might be if you back 150 years to a small village which is supplied with milk from one farm. The farm would never double the size of its herd because, they truly have information - full and complete.

Now when a farm decides to double the herd size, just exactly how much information is actually available? Does the farm have any understanding relative to the market in forming a decision?

Take the "Cold Storage" data, published by USDA. Is that simply data or information? You can pile the data quite high and not have real information. Or take the numbers from CME - just data.

We could have more information, real information, but, that would take leadership. As it is, the farm which is doubling is encouraged to expand by those with greater information because, the net result is a lower farm milk price.

Commodity Price and Inflation

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Both corn and oil prices were up today. The New York Federal Reserve published a study in November 2008 on commodity prices and "Personal Consumption Expenditures" (PCE) :

http://www.newyorkfed.org/research/current_issues/ci14-8.pdf

This article evaluates the importance of commodity price
increases for PCE inflation over the June 2006-June 2008
period. Our analysis of the role of commodities in the production
process of personal consumption goods and services
shows that crops accounted for about 1.0 percent of the cost
of inputs needed to produce a dollar of total PCE in 2006; oil
and gas accounted for 2.8 percent.

I assume the Federal Reserve might take a different view if they were feeding dairy ration and hauling manure.

Now imagine how good a tool "risk management" is if March Class III milk futures were committed in December 2010 (see graph above). Today Class III closed at $19.47 per hundredweight.