Disconnection from Reality in Agriculture

I often find myself irritated by what appears to be a serious problem with how some ag news outlets and their various pundits report on the dairy industry. Ever since milk prices plummeted a couple of years ago, I’ve been reading an endless string of opinion pieces by the so called experts, the pundits, even actual news reports, that indicate that milk production is dropping, or is going to drop, the number of milking cows is going to shrink, and there is going to be a significant improvement in farmgate(1) prices.

Even as I was reading some of those items I was scratching my head because the actual data I was seeing was telling me exactly the opposite of what the pundits at the ag web sites were claiming. While there was some shrinking numbers in some parts of the world, like New Zealand, what I was seeing in the rest of the world was a significant increase in production almost world wide.

The experts were claiming that production in the US was shrinking as well. They were claiming that production was flat or even shrinking as farmers culled herds and halted expansion plans.

The problem was that at the same time I was seeing new permits for mega farms being applied for, news stories about expansion plans, and other indications that exactly the opposite was happening.

The new USDA report that came out yesterday supported what I’d been seeing in the news, and indicated that the pundits don’t read the news reports in their own magazines or websites.

August milk production was up almost 2% in the US. Texas’ production was up 11%. The report said that 16,000 milking cows were added in July alone, and 45,o00 were added over the past year. And just ten minutes ago I was reading about yet another application here in Wisconsin for a dairy CAFO(2) to expand to 5,000 head.

The problem with a lot of these experts seems to be that they look at a specifically local condition and extrapolate from that and apply it world wide, while ignoring what’s really going on.

Some of the claims that production in the US was in decline was due to California. Production there has been declining significantly for the last ten years for a variety of factors. But they’ve been ignoring the fact that almost everywhere else in the US production has been going up. Wisconsin, North Dakota, Arizona, Minnesota… almost every state with any kind of significant dairy farm presence has been increasing production, often dramatically, as with Texas.

It’s been the same thing with the EU. They focus on a single country that’s seen a decline in production, and from that claim production is going down through the entire EU. When it isn’t.

It’s been a similar story when it comes to demand for milk products. They seem to focus on a small part of the world that is experiencing an increase in demand for milk products, and apply that world wide.

Even worse, they’ve gotten in the habit of looking at Global Dairy, a milk marketing system in New Zealand, as an indicator of world wide demand. But they tend to ignore the fact that GD is not an independent market. It is a wholly owned subsidiary of Fonterra, the New Zealand milk processing giant, and that it has a history of deliberately manipulating supplies flowing through the market in order to manipulate prices. Neither the amount of product flowing through GD, nor the prices of the products sold, is an accurate picture of supply and demand.

 

 

  1. Farmgate price is not the commodity futures price, but the actual price that the farmer gets for her/his product. There is often a significant difference between the commodities prices and the farmgate price. For example, a couple of months ago when the corn price on the Chicago market was running about 3.49, the actual price farmers in this area were getting for their corn was 2.78.
  2. CAFO is the term used by government for a mega farm. Concentrated Animal Feeding Operation. It applies not just to dairy farms but to any animal operation that has more than a certain number of cattle, pigs, etc. Generally around 500 – 700 animals.

2 thoughts on “Disconnection from Reality in Agriculture

  1. The pundits are assuming a rational response by producers in accordance with classical microeconomics theories – ECON 102 at most schools. Unfortunately, the pundits apparently avoided both more advanced economics or economic psychology. Actually reading the news in their own publications becomes irrelevant if the objective reality isn’t supported by their chosen model. Curious, because models should be adjusted when they are contradicted by the data. Doing so, however, might require that they take ECON 310.

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    • You have a very good point there. I’ve found it troubling that a lot of these people seem to think that the only thing influencing production is simple supply and demand, and fail to consider other factors that can have enormous influence on the situation. Or just as troubling, they tend to only take into consideration information that supports their own beliefs and ignore anything that doesn’t.

      I recall a few years ago when China was still engaging in large imports of milk products, the dairy industry and the agricultural financial experts all seemed to believe this situation was going to continue indefinitely and were encouraging dramatic increases in production and building new processing facilities to service the Chinese market. But at the same time there were news reports coming out of China that consumer fears following the melamine contamination disaster were dwindling, that the Chinese government was investing heavily in its domestic dairy production, and that Chinese stockpiles of milk products had built up to massive levels. All of that indicated that China’s importation of milk products was going to be cut drastically in the very near future. And that’s exactly what happened and milk prices world wide crashed.

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