Sunday, May 31, 2009

The remorseless market...

The fact the organic milk market is faltering is not particularly surprising to me, but it is one of the sharper downturns in the otherwise dismal dairy industry.


(We are seeing too many of these cliff-diving charts for my comfort)

Painful too are the stories of shattered dreams for the mostly small producers who invested to make the switch.  The combination of feed prices and the reality of hard-to-prove organic "benefits" have consumers substituting "down" to regular, cheaper milk, while expenses obliterate margins.
But soon the price of organic feed shot up. Then the recession hit, and families looking to save on groceries found organic milk easy to do without. Ultimately the conglomerate, with a glut of product, said it would not renew his contract next month, leaving him with nowhere to sell his milk, a victim of trends that are crippling many organic dairy farmers from coast to coast.
For those farmers, the promises of going organic — a steady paycheck and salvation for small family farms — have collapsed in the last six months. As the trend toward organic food consumption slows after years of explosive growth, no sector is in direr shape than the $1.3 billion organic milk industry. Farmers nationwide have been told to cut milk production by as much as 20 percent, and many are talking of shutting down.
Certainly their own byzantine regulated milk pricing system (hardly an efficient market) isn't helping.  Nor is the ability of enormous dairies to produce milk very cheaply. But this final round of consolidation is even uglier than the hog or cattle consolidation due to the strong consumer attachment for cows.

Doubtless corn prices are one powerful factor in this grim picture, and despite glib assurances that corn farmers have ample productivity to supply the ethanol plants and our old customers like the dairy industry. What we are actually hoping is this supply is sold at much higher prices, regardless of the downstream consequences.
Feed accounts for 50 percent to 60 percent of the cost of producing milk. Escalating feed costs, fueled by the growing demand for corn to make ethanol, have eroded potential profits. [More]
Probably we can mandate more replacement corn markets as the meat industry shrinks, and arguably this could be a good thing for our diet. But the livestock industry is not fooled, and justifiably is feeling increasingly betrayed by legislators who took the corn farmer side for whatever political reason.

Grain producers are facing similar future, I think. And not many in the rest of agriculture will be sympathetic.

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