Bloomberg: Dairy-Cow Kill to Double Milk Price After Slump
Dino Giacomazzi, whose great- grandfather started the Giacomazzi Dairy in Hanford, California, in 1893, said he had no choice but to sell 100 cows, or 11 percent of his herd, in the past four months. Rising feed prices and a world surplus meant it cost as much as $17 to produce $10 of milk.
“Producers are in an absolute state of panic,” said Giacomazzi, 40. “To spend 100 years building a dairy business and see much of that equity disappear in a year is very troubling.”
Farmers plan to shift the pain to consumers. The National Milk Producers Federation in Arlington, Virginia, will pay dairies to slaughter 103,000 U.S. cows in coming months. Milk futures prices will double next year to a record $23 per 100 pounds (43.5 kilograms) as the herd shrinks by 171,000 head, the most since 1989, said Michael Swanson, a senior economist at Wells Fargo & Co., the largest lender to U.S. farmers.
The cuts will lead to the first two-year drop in output in four decades and higher prices in 2010 for butter, cheese, milk and the non-fat dry powder that’s a benchmark for global exports, according to U.S. Department of Agriculture forecasts. Futures for delivery in September 2010 trade 56 percent above today’s prices on the Chicago Mercantile Exchange.
Retail butter prices may rise above the record of $3.937 a pound and cheddar cheese may top $5.097 a pound, according to Jerry Dryer, 65, the editor of the industry newsletter Dairy & Food Market Analyst in Delray Beach, Florida.
‘Big Spike Up’
“We could easily see $20 milk again next year,” said Richard Bradfield, a vice president of the dairy business at International Ingredient Corp., a manufacturer of specialty feed products in Fenton, Missouri. “The longer these low prices last, the greater the potential for a big spike up in prices as dairies make larger cuts.”
New Zealand Exports
New Zealand exported 50.8 million kilograms of milk powder to China in the three months ended March 31, more than four times as much as the same period a year earlier, according to Statistics New Zealand. Dairies are the country’s biggest export earner, accounting for about 20 percent of trade receipts, government data show.
Whatever happens with demand, a recovery won’t be possible without a cull in the industry, said the Milky Way Dairy’s Gailey.
“We are in a depression right now,” he said. “I have to be an optimist that the dairy farmers can get together and find a way to reduce the cow herd about 5 percent so that prices can recover quickly.”
IMHO this is over reaction to a temporal slump in the commodities market. By all means, this interventionism is an attempt to forcefully induce inflation. I feel for the farmers, but isn't this always the plight of all sorts of farmers? They produce one type of commodity, and at times that particular commodity becomes uneconomic, sometimes for months - sometimes for years. Perhaps it is time to review how trade is performed (not to impose protectionism, just review the physical trade platform) - because if everyone is losing, there might be something wrong with the system. The commodities markets have always been manipulated by big money guns.
Perhaps other business opportunities are available? Export more meat, produce specialty dairy products, local fairs - many different options?
Just thinking out loud.
Related, Wolverine milk ad:
Image source: here.