Thoughts for a New Year

Geoffrey Vanden Heuvel

by Geoff Vanden Heuvel

The author, a dairyman in Chino, Calif., is a board member and economics consultant for the Milk Producers Council.  This piece appeared in the MPC newsletter dated Jan. 5 and is used here with permission

I have no more knowledge about what is going to happen in 2018 than the next guy. Producers are pretty grumpy right now about the economics of milking cows. Looking at the current milk prices, this attitude is understandable and probably justified. But it seems to me that there are a few things worth considering on the other side.

The overall economy is strong and demand, both domestically and internationally, is not that bad. We have an oversupply problem more than anything else, but dairy farmers all over the world (with the notable exception of Canada) are suffering too.

There are significant processing capacity constraints in the Upper Midwest and the Northeast. This will restrict supply growth. The market is doing its job of sending signals to producers to throttle back production and producers everywhere on the planet are receiving that signal. This is not 2009. At that time the whole world economy was suffering from the Wall Street and mortgage meltdowns. Those events severely impacted demand, and as producers, we could not react quickly enough to the sudden drop in demand, which resulted in a free fall in milk prices.

For the six months from February 2009 through July 2009 the California overbase price averaged $9.70. That was a wreck of historic proportions. I do not think that is what we are dealing with now. In fact, I think the seeds of price recovery have already been planted. So hang in there my friends. Remember we do not so much solve problems as we outlast them.