January 24, 2008

Schumer: Lift ethanol tariff to cut milk prices Part II

This a follow up to an earlier post.

First off, I would like to send a thanks out to Dave over at Ethanol: Fact, Fiction, Reality for the plug in his analysis of this matter.

The part of this debate that I want to cover here is the notion that farmers set prices for their goods and that input costs are reflected in those prices. Farmers don't set their own prices, the market sets the price and that is controlled by supply and demand.

The only way that input costs can effect pricing is if they effect supply. If farming becomes unprofitable and farmers quit producing, then supply drops and prices rise.

With that in mind let's look at diary cow numbers and milk production over the last few years to see if high input costs have effected those numbers.

2007 - 9,153,000 head : 185,599 million pounds production
2006 - 9,112,000 head : 181,798 million pounds production
2005 - 9,043,000 head : 176,929 million pounds production
2004 - 9,012,000 head : 170,934 million pounds production

As you can see the number of dairy cattle and the production has steadily increased. So there has not been any herd reductions due to high feed costs.

As is always said it all boils down to supply and demand and as you can see supply is not the issue. The price of milk is being driven by demand not input costs.

Source : USDA

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