The Fall of Milk

You may enjoy the reverse sticker shock you experience when you buy milk these days. Prices are way down. But that falling price indicates pretty much the same thing as the falling Dow: economic mayhem. Sorry for the buzz-kill.

Prices are down because demand is down. And demand is down—worldwide—because of the economy. When a staple like milk takes such a steep drop, that's a sign of  big trouble, especially for dairy farmers, many of whom have resorted to selling off their dairy cows to slaughterhouses, often at less than half the price they would have fetched just a few months ago.

As prices are falling, feed costs remain high, and farmers are getting back only about half of their costs. Obviously, that's not sustainable. As a result, nearly a fifth of America's 9.3 million dairy cows might be turned into steaks and hamburgers this year.

"This could destroy our dairy infrastructure," Mike Marsh, CEO of the United Western Dairymen trade association, told the Allentown Morning Call.

In California's San Joaquin County, about 50 dead bull calves have recently been dumped on rural roads. That's a terrible thing, but it's cheaper than raising them or hauling them to a rendering facility where they might fetch $5 each.

Judging by the recent newspaper articles collected by FarmPolicy.com, the situation is only going to get worse. In 2008, the average price of 100 pounds of milk traded at the Chicago Mercantile Exchange was $17.44. Now the price is just above $10, and most observers think it will go even lower. In December, the price of commodity cheese fell by 40 percent in just a couple of weeks.

Not surprisingly, farmers are seeking a bailout. Sen. Amy Klobuchar (D-Minn.) has written to Agriculture Secretary Tom Vilsack asking for help, mainly in the form of stronger price supports and government purchases of surplus milk.