Falling Milk Prices Kill Cows

The price of milk at wholesale fell significantly in January, leading some dairy farmers to make tough cost-cutting decisions -- like thinning the herds. Stacey Delo reports. (Feb. 12)



My reaction: A perfect example of supply destruction.

1) Milk prices plummeted in January.

2) Farmers are selling cows to slaughter to reduce cost and limit the supply of milk.

3) While prices have fallen as demand weakened, the cost of producing milk has remained relatively high, “with some farmers having locked in corn futures prices when they were rising” and so are “not benefitting from the fall.”

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0 Responses to Falling Milk Prices Kill Cows

  1. SteveR says:

    Eric,

    I am still but a learner...Is my thinking correct here:

    Supply is being destroyed. So later, when demand returns, there won't be the supply to meet it, and supply cannot quickly be ramped up, because it takes a while to raise a cow. So if demand returns, then prices will go even higher than before, because there is less supply.

  2. Yohay says:

    So now we can get cheaper beef! There's always something good in a crisis...

  3. Anonymous says:

    Yohay, re cheap beef.
    As well as producing milk 305 odd days a year, a dairy cow also produces a ......calf.

    A dairy cow will typically produce say 7 calves over her lifetime. 1 'replacement' and 6 spare.
    The spare calves go towards beef and veal production.

    FJ

  4. Anonymous says:

    So basically we are guaranteeing higher beef and milk prices by culling the herd. Maybe we should all buy freezers and purchase cows from the farmers and store the beef for later. Alternatively, we can buy SHLD "Sears" they sell freezers dont they..?

  5. SteveR said...
    Supply is being destroyed. So later, when demand returns, there won't be the supply to meet it, and supply cannot quickly be ramped up, because it takes a while to raise a cow. So if demand returns, then prices will go even higher than before, because there is less supply.

    Nearly right, supply is falling faster than demand. So even if demand doesn't recover, prices will head up because of shortages.

    -----

    Yohay said...
    So now we can get cheaper beef! There's always something good in a crisis...

    True, but this is herd thinning is only temporary. Also, the droughts around the world are killing hundreds of thousands of cattle, which means higher beef prices in the near future.

    -----

    Anonymous said...
    So basically we are guaranteeing higher beef and milk prices by culling the herd. Maybe we should all buy freezers and purchase cows from the farmers and store the beef for later.

    As soon as gold goes over 1000, I am going to start stocking up on food, including filling freezer with some meat.

  6. Anonymous says:

    Hello Eric,

    Thanks for all your comments, it's unbelievable, but I'm for all the things the same vision as yours.

    6 months ago, I was thinking about to fill my foodstock, when the goldprice would skyrocketing. I'm already busy to buy coffee and cacao (I couldn't live without my cup of coffee every morning...).

    I'm happy to hear a expert, who has the same vision about the world developments. Now, I'm young, but not stupid... All the other experts said to me: it will come good... Do you think I will take this advice? No way...

    I'm not concerned about the development of the 'capitalist system' on the long term, we've also survived the crisis of '30...

    When the goldprice is busy to skyrocketing, I'll will deleverage my positions in (physical) gold and build up into rough energy (Uranium, oil, gas,...)also in RICI index (Jim Rogers, a good diversification, could buy by BNP Paribas, to invest in the currency euro). Is it also clever to put my money on the energy-related stocks (like Total, Royal Shell,...)?

    Thanks for your free-thinking advice, I'll will share my visions about the world and the developments!

    Sincerly

    Yann

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