Tuesday, November 2, 2010

Do Dairy Farmers Profit from Increased Retail Milk Prices?

Cows being milked in our double-12 milking parlor - it takes 4 to 5 minutes to milk each cow
The top of the milking parlor - the content cows chew their cud while being milked
You may have noticed the price you pay for dairy products, such as butter, cheese and milk, has
increased over the last several weeks. While watching the news recently, I saw a story about the
escalating price of dairy products in the grocery store. The news anchor reported this rise in prices is
caused by the increase in the price of commodities, like corn and soybean meal, used to feed cows.
The anchor went on to say since dairy farmers cost of production was rising that cost was being
passed on to retail stores and consumers.

That is false. Dairy producers have no control over the price they are being paid for their milk.
Producers don’t set the price and can’t “pass on” their costs. Processors who make dairy products
and retailers who sell them pass on their costs so they are insured a profit. But dairy farmers do not
have the choice to pass on extra costs, when our operating expenses increase, our profit margin
decreases.

The cost of production is not a factor in determining the milk price paid to dairy producers. In fact,
over the last two years, dairy producers were paid less for their milk than it costs to produce. As a
result, dairy farmers lost money every month – on average $100/cow/month between late 2008 and
early 2010.

The Hand That Feeds U.S. recently published an interesting article titled As Food Prices Rise, the Farmer’s Share Drops  which provides facts about the farmer’s portion of the retail food dollar.

The milk price paid to dairy farmers is based on the Chicago Mercantile Exchange (CME) price for
Class III milk. In Ohio, dairy farmers are part of the Mideast Marketing Area known as Federal Order
33. The marketing area is determined by which region of the U.S. you produce milk in and the price
producers get paid in each region is different. Milk price changes each month and producers don’t
know what they will be paid for their milk until the 13th of the following month. For example, I know
what I’ll get for my October milk on November 13th.

The Federal Order 33 milk price is the CME Class III price plus the Producer Price Differential (PPD)
for the month. The PPD is determined by how milk in our federal order is utilized - what percentage of
the milk is used for drinking milk, manufactured products (like ice cream), cheese and powder/butter.
Each use has a different dollar value. For example, milk used for drinking commands a higher price
than cheese so if a higher percentage of milk is used for drinking vs cheese or butter, then the PPD
will be higher.

When you see prices of products escalating in the grocery store, know that it’s not at the choice of the
farmer. In fact, we as farmers don’t benefit from consumers paying more for food because if the price
of cheese and butter rises, consumers will purchase less of it, which hurts producers in the short and
long run.

3 comments:

  1. Great explanation about retail price and what we get at the farm.

    ReplyDelete
  2. WELL said bout dairy farmer's problem. Milk retail price MUST rise up IMMEDIATELY!!!!!!!! The middle man earn more money than the hard work dairy farmer.

    ReplyDelete

Thank you for reading my blog and taking the time to comment! I’m opening the doors of our farm to share with you and enjoy engaging in discussion. Please be respectful in your comments. I reserve the right to remove posts that include name calling, slander, and vulgar language or contain links to websites that assault animal agriculture.

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