Consumer Spending

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The Bureau of Economic Analysis (BEA) regularly publishes data on consumer spending called "Personal Consumption Expenditures" (PCE). The monthly data for "processed dairy products" shows a clear increase in consumer spending through October 2010. So, what can explain the fall in farm milk price generated by players on the CME. I would suggest someone in a position to do so look at the "shorts" on the class III futures.

Political Power

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In 1961 John F Kennedy was in office, in spite of the fact that many people thought there would never be a Catholic President. Hope seemed to be in the air and milk prices transmitted efficiently from farm to the public.

In the above graph, I have once again combined the categories of dairy products published by the Bureau of Economic Analysis as "Personal Consumption Expenditures" (PCE). Then I took the "All Milk" price times the farm milk production. The results are a graphic representation of market failing to efficiently transmit price signals.

The difference, in the time period from 1961 through 2008, between farm and consumer value changed by just over 600%.

Something is Wrong

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The August 2, 2010 post covered the recession and "all milk" price. I am posting the graph again for comparison.

U.S. Department of Commerce's Bureau of Economic Analysis (BEA) publishes monthly, Personal Consumption Expenditures (PCE. The PCE tables indicate how much the public spent for a number of items. There are two lines for dairy which I have added together.

As can be seen, consumer spending for dairy hardly dropped during the "official" recession (calculated by NBER). The drop from begining to end was just about 2% and the fall in the Consumer Price Index (CPI) was about 5%. All of which means, the public actually increased purchases of dairy products during the recession.

So, there is something very wrong with conventional story about the fall in farm milk price.