Saturday, April 30, 2011

Balancing Act

(click on image to enlarge)

Milk leaves the farm and theoretically goes to the highest use, which has historically fluid milk. Eventually, when no other home can be found, the milk goes to a nonfat dry milk plant, which is considered the lowest value.

This process is called balancing. But, there is another aspect. The government stands ready willing and able to buy dairy products at the "support" price of $9.90 per hundredweight or for NFDM $.80 per pound.

A look at the graph above should be all the proof anyone needs that sales to the government is an act for reasons known to the big players. For the most part, the sales to the government correspond with low farm milk price and sales to the government are considered "surplus." Logically, the manufacturers warehouses should be filled to the brim. However, that seems to have not been the case.

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