Andrew Novakovic is a professor in the College of Agriculture and Life Science’s Dyson School of Applied Economics and Management at Cornell University. His research focuses on the U.S. dairy industry. Novakovic comments on recent concerns about spikes in the prices of milk and other dairy products.
“Since the mid-1990s, the farm price of milk has fluctuated in a pronounced cyclical pattern. When milk prices are heading down, farmers express concern that retail prices won't follow and thereby make it harder to get supply and demand back into balance around more average prices. When they are heading up, downstream industry and consumer voices worry about impacts on affordability and consumption.
“In early 2014, we are hitting a new high for the price of milk paid by fluid milk processors. The March 2014 price, already established, will exceed by about 20 cents per gallon the previous highs in 2004, 2007, 2011, and 2012. The January 2014 farm value of milk used by fluid processors is comparable to the December 2013 price. At that time, the national average for the retail price of a gallon of milk hit $3.58, nearly identical to the $3.55 estimated for this January.
“So, will retail milk prices hit a new high level in the next few months? Assuredly they will.
“Farm values for milk are being impacted today primarily by world market conditions that have driven demand ahead of supply. U.S. market conditions portend increasing milk production over the next few months that will likely bring prices down somewhat later this year. However, the bigger news is that demand in China and other emerging markets is exerting an effect on the value of milk all over the planet, including the U.S.”