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On Cows and Markets

By E. W. Lang

Barrel cheese lost 26 cents and ended the week at $1.65 per lb., eight cents lower than it was two weeks ago when the abrupt run up, and equally abrupt fall, in cheese price began.

Block cheddar cheese lost 15 cents to close at $2.05 per lb. That's five cents higher than two week ago.

Conventional wisdom is that a cheese processing problem at one facility created a brief but significant cheese shortage, and subsequently drove up milk prices for five days - from $18 to $19.70 per cwt. Price resistance and manufacturing changes then prompted milk prices to drop back to $18.67 today. I'm over simplifying what came to pass, but this seems to be largely why the surprise run up and retreat in price was so dramatic and brief.

Butter lost 11 cents per lb., and closed out this week's trading at $2.11 per lb. That's a couple cents off of a two year low.

Class III milk, for the week, lost five cents in September, 54 cents in October and, strangely, gained four to 17 cents in 12 of the 13 subsequent trading months. This followed gains last week of $1.48 in October and 99 cents in November.

Average price for 4Q19  Class III Milk Futures is $18.25 per cwt., a gain of 23 cents since last Friday, if that makes sense. Calendar 2020 averages $17 plus small change, up small change from last week.

On Wednesday, one day after milk had been over $19.50 and one day before milk closed under $18.50 per cwt., parlor free-stall cows topped at $2300 at Premier Livestock Auction in Withee, Wisconsin. That was a couple hundred up from a week earlier when milk was $18.25 on sale day.

USDA has granted a seven day extension to sign up for the Dairy Margin Coverage program, commonly known as government milk subsidies.

Three dairy/livestock facilities were liquidated at public auction a couple weeks ago in southern Iowa. A 1600 cow dairy on 40 acres sold for $130,000. A 700 cow dairy on 101A sold for $81,000. A heifer facility on 35A sold for $63,000. Each of these properties had 18 to 37 bids and were absolute sales. I think the 1600 cow dairy was new in 2000. The sale prices reflect the remaining land value after removal of all structures and biting an unknown amount to address any environmental surprises.

Anecdotal information indicates that many dairy farm suppliers are serving as default lenders with burdensome accounts receivable, many doubtful.  These include, but are not limited to, frozen semen suppliers, hay and corn chopper folk, manure pumping people, Doctors of Veterinary Medicine, milking machine service/pipeline soap providers, and feed suppliers, of course.

As such, a significant number of ag businesses will be out of business once the bad dairy accounts are zeroed out at some point in time. Also, with fewer dairy farms, fewer service and sales entities will be needed. Business is a cruel endeavor.

Ambitious, creative people, however, will find faster, better and cheaper ways to deliver goods and services to the remaining milk producers who operate both near and far.

Ahead lie opportunities for some new people to get in and get started, just as some existing suppliers are wrung out by the waves of creative destruction. Waves that have, thus far, only visited economic destruction to the dairy industry.

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