Milk Prices Across North America Will Be Higher in 2013 (feed costs, dairy cliff, grain prices, food prices)
- Category: Food Prices
- Last Updated on Saturday, 16 February 2013 08:24
- Written by Seraphim
Because milk is one of the most widely used agricultural products, fluctuations in its price have widespread ramifications; baked goods become more expensive to produce and cheese prices soar along with the price of pizza, baby forumulas, etc.
Why the price hike ?
Most significant contributing factor are the feed costs ! Over the summer of 2012 grain prices soared, up in pretty much every country including Canada where it grew by 50%.
Output of wheat, rice, soybean and corn was lower by a significant margin and that led to an imbalance in supply and demand consequently forcing prices higher. Livestock feed on a mixture of those grains (corn seeds, wheat); more expensive feed makes it more expensive to raise livestock, forcing farmers to thin their herds. The first to absorb those costs are dairy farmers who must then renegotiate the final price with the companies that produce the store-ready milk.
For the long term, US laws relating to subsidies are the biggest threat to stability in milk prices
Dubbed the dairy cliff, sometime in 2013 America's current beneficial farm subsidy law will be replaced by a not-so-generous one, thanks to cutbanks in spending drawn to avert the fiscal cliff. Though politicians are saying all options are still on the table, they have already scrapped $5 billion worth of direct subsidies to commodity farmers. A one year relief program was in the works but ended up off the table due to not making the cut when the fiscal cliff was finally averted. At expiration the subsidy program would go back to what it was in 1949, the effect of which would be a possible doubling in the price of the final product.
The fiscal cliff deal did however extend portions of the 2008 farm subsidy bill but only through September 2013. A substantial increase in the price of milk could come during the fourth quarter of 2013.
Seraphim's opinion: What's alarming about this is not that the US may not be able to support a new farm subsidy program but that the normal cost of milk is actually double what American's are currently paying.
Being the world's biggest producer by far as well as its most important milk exporter prices in the United States will undoubtedly affect prices in many other countries; India and China the world's second and third largest milk producers are net importers hence they can't fill the supply demand gap.