Corporate Power

(click on images to enlarge)

The first graph is similar to graphs in the past. The Consumer Price Index (CPI), Producer Price Index (PPI) for processors and the PPI for farm milk. The index is calculated by the Bureau of Labor Statistics (BLS) using 1982 -84 as the base period representing 100 or 100% of the base. Each year is then divided into the base.

As can be seen, prior to the elimination of parity, all three prices moved up roughly together. This is called efficient transmission of price signals.

When parity milk pricing was eliminated, all of the power to price farm milk was put into the hands of the corporations buying farm milk.

So, the second graph I constructed by taking the processor PPI and subtracting the farm PPI. In this graph 1982 represents zero as there was no difference. As anyone can plainly see, this was a massive transmission of wealth to the powerful by means of legislation.

Small wonder that dairy farm milk pricing is seen as complicated.

Prices

Today, USDA release its Ag Prices report available at: http://usda.mannlib.cornell.edu/usda/current/AgriPric/AgriPric-01-31-2011.pdf

USDA estimated the "All Milk" price at $16.20/cwt. USDA also states the parity price would have been $44/cwt (that is at over 90% parity, which never happened). Nevertheless, there ha been a lot of money going into the middle since Reagan signed the bill eliminating parity milk pricing.

A thorough examination of where the money went would be useful in many ways. Is the entire system efficient, or is it just capturing a benefit of a form of servatude?

For those who are interested, the above link has a great deal of information on parity and how it is calculated.

2+2 = ?

The trade data came out yesterday. Altogether, the U.S. exported 4% more dairy product Jan - September 2010 than the same period in 2008.

The most recent "Commercial Disappearance" numbers only cover through August. Close enough. January through August of 2008 the milk equivalent was 127,432
(x 1 million) pounds. In 2010 it was 129,627 (x 1 million) pounds.

The average "all milk" price for January through September 2008 was $18.83 and for January through September 2010 it was $15.52 per hundredweight.

It really does not add up.


"In the case where it is a form of theft, distinguishing between embezzlement and larceny can be tricky." Wikipedia

Farm Milk Prices

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Note: I enlarged the section (11/06/10) to show the detail better. U.S. is the green line and NZ the red line.

Take a close look at the above graph. Where is New Zealand's farm milk price relative to the U.S.? The above graph by Fonterra does not show 2010 but, it is higher for NZ.

Imbalance of Power

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Nearly everyone has become familiar with the concept of boom and bust. For dairy, there is no boom. The trend is not the result of some evil people plotting the destruction of dairy farmers. For the most part, most dairy farmers have supported the very politicians and policies which has brought dairy farming to near collapse.

Unquestioning belief in "supply and demand" determining price price through a "market" magical discovery prevails.

In fact, we have a price derived system - a top down system.

"Government is the problem" was bought hook, line and sinker in the early 80's. Antitrust resources were reduced on Ronald Reagan's first day in office to one eighth of what they had been the day before.

Supermarkets took off, as can be seen in the above graph. Supermarkets really wear the pants in dairy and dictate terms. Processors take those terms and through the CME give the dairy farmers the dregs.

Time is not really on anyone's side.

History Part II

I can hire one half of the working class to kill the other half.
Jay Gould
US financier & railroad businessman (1836 - 1892)

Jay Gould could have been talking about dairy farmers but, it isn't the farmers that are the problem. The problem is the leadership, which includes land-grant experts.

A paper on the 196 Farm Bill written by Ed Jesse is available at: http://future.aae.wisc.edu/publications/mpb55.pdf

Jesse says in the paper:

"Upper Midwest objections to the Compact are grounded in its effect on the supply of milk for manufacturing purposes and the resulting effect on prices for manufactured dairy products."

"The Compact sets fluid milk prices higher than federal order minimums. This decreases fluid milk consumption and, through an increase in the blend price to producers, increases milk production. Larger production and reduced fluid consumption add to the supply of manufacturing milk, lowering manufacturing milk prices both inside and outside the Compact area."

As can be seen in the graph in the previous post, Jesse's argument is pure fiction.

Now, move ahead to the present.

See: http://www.agriview.com/articles/2010/07/08/dairy_news/dairy03.txt


The article is about supply management, which IDFA opposes as they did the Compact.

Here is Jesse:

Jesse said there are differences of opinion based largely on which region of the U.S. a producer lives and farms in. For example, Jesse said California is pushing supply control “hard” because “they’ve lost their competitiveness because of higher feed prices. They want to ensure that they can keep their market share by forcing others to cut back...”

Evidence of that “hard” push for mandatory supply controls is seen in the names of the authors and co-authors of the two versions of the Dairy Price Stabilization Act of 2010. Representative Jim Costa, a Democrat from California, has signed on.

The bills also have backing from senators and representatives from Northeast states, which, Jesse said, are also at a competitive disadvantage to Wisconsin and other Upper Midwest states when it comes to producing milk somewhat inexpensively. Senator Bernie Sanders, an Independent from Vermont, is the lead author of the Senate bill, while Senator Patrick Leahy, a Vermont Democrat, has also added his name to the legislation. Meanwhile, the House bill bears the names of Peter Welch, a Democrat from Vermont, along with the names of John Larson and Joe Courtney, a pair of Democrats, both from Connecticut.

“They’re fairly strongly in favor of this,” said Jesse, of the Northeast. “I think they see it as a way of n just like California n ensuring that they can continue to produce milk and support local communities. That’s not a bad objective, but at the same time, I think you have to consider where milk can be produced the most efficiently, and consider the movement of milk as opposed to the local supply...”

Jessie worries that a supply control program might hurt the growth in dairying that Wisconsin has enjoyed the last few years. And he said that Canada’s example shows that there is “no clear evidence” that a milk quota system helps retain dairy farm numbers.

"It's déjà vu all over again" as Yogi Berra used to say.

Basically, any plan which stand a real chance of putting more money in the farmer's pocket will be opposed by land-grant experts - who are on the public dole.