BY THOMAS JURCHAK
Lackawanna Co. Agent
SCRANTON (Lackawanna
Co.) December 15, 1989 -
Farmers never gel tired of hearing
of increasing prices over and over
again so I’m sure you’ll be happy
to hear for the eighth consecutive
month that the Minnesota Wiscon
sin Price Series has taken another
leap to $14.69 for 3.S bulterfat in
November. These aren’t just the
usual seasonal increases expected
at this time of the year but gigantic
leaps of record proportions. Last
month it was an increase of 82
cents which in itself was a record
as well as the third consecutive
month for a record high M-W
price. Since March this makes a
total of $3.71 in price increases in
the M-W which is now $4.34
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Milk Market News
above the support price for manu
facturing grade milk. Because of a
two-month lag in reflecting the
M-W in the Class I price, which
doesn’t happen with the Class II
price in Federal orders, you now
have the unheard of situation
where the Class II price for No
vember will higher than the Uni
form or blend price was in Octo
ber. It also pushes record high
Class I prices for the third conse
cutive month to $17.24 in January.
That’s $2.27 above the old record
of $14.97 set in January 1985 in
Order 2. All of this should give
you some perspective on how high
is high when we’re talking milk
prices today. Forecasters all agree
that this pace of price increases
can’t keep up for much longer but
how soon and how far the drops
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will come is still speculative. If we
look at some of the reasons for the
increases we may find some clues
about when to expect the decreas
es. It isn’t enough to say it’s a tight
supply demand situation but
that is the reason for the increases.
The better question is why tight
supply and why increasing de
mand?
The tight supply situation
wasn’t just a matter of less milk
but more importantly when and
where. The drought of 1988 in the
Midwest didn’t help milk prices.
In fact it only increased feed
prices but milk production nation
ally kept going up in spite of the
drought. It wasn’t until the spring
of 1989 in the Upper Midwest
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TIGHT SUPPLY
Lancaster Farming, Saturday, December 30,1989-A43
specifically in Minnesota and
Wisconsin that milk supplies
began to change and prices started
up. Mainly it was the quality and
quantity of forage available in that
two-state area last spring that real
ly dropped milk production and
cut into supplies. It was important
that this drop in production came
in Minnesota and Wisconsin rath
er than somewhere else in the
country because that’s where our
milk prices start.
DEMAND INCREASES
Because the demand increases,
particularly for cheese and pow
der. came at the same time as the
production decreases you got the
big monthly price increases be
tween 43 and 82 cents. More im
portantly, however, were the rea
sons for the new demand. After
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the year end holidays in 1988 buy
ers left the market for three
months expecting to rebuild their
inventories during the spring flush
of milk. The M-W price dropped
$1.29 from December to March
before the buyers came back in the
market only to And there was no
spring flush. With cheese con
sumption increasing at an annual
rate of eight percent, partly be
cause there were no more give
away stocks, they had to compete
for smaller supplies of milk.
Cheese prices rose from $1.13 in
March to $1.54 in December. Be
cause Minnesota and Wisconsin
make 60 percent of all the Cheddar
cheese in the country and because
milk production was down in that
two-stale area, the ripple effect
was felt all the way to northeastern
markets where milk is priced on
the M-W price.
If that was the whole story we
still wouldn’t have prices as high
as they arc. To the increasing
cheese demand we have to add the
increasing milk powder demand.
This came because of the export
opportunities provided by milk
production quotas put on Euro
pean dairymen four years ago. At
that time they had mountains of
powder as well as butter that had
accumulated through their subsid
ies much the same as we had here
at that time. The difference was
that their government would sub
sidize the export of dairy products
as well as the production. We gave
ours away at home. They sold
theirs at bargain prices as exports.
This drove the world price down
below our support prices and we
couldn’t compete until we wrote
some export subsidies into the
1985 farm bill. More importantly,
the European surpluses were gone
because of their production quotas
and we could now sell to interna
tional markets. Powder prices rose
from 79 cents in March to $1.50 in
November with spot market prices
going to $2.50 including shipment
from California to eastern cities.
Again with the year end holi
days behind us it’s expected that
cheese buyers will back off after
December to wait for another
spring flush. If cheese prices drop
12 percent as they did last winter
they will go from $1.54 to $1.35
or a loss of 19 cents which is
worth $1.90 on the milk price.
Chances arc that it will be more
than that before buyers are ready
to go back in the market and they
may be helped by a drop in the
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