The Dairy Industry: A Volatile Market

A Volatile Market

The Dairy Industry is a very localized one, with separate states often relying on dairies solely within their borders. In fact, every state in the union boasts at least one dairy operation, providing our citizens with reliable local products. Few other sub-industries within agriculture can boast a presence any where near as widespread and stable.

With such widespread production, impacted by varying regulations from state to state, price volatility comes as one of the most concerning factors for producers.

In fact, according to an October, 22, article from Farmers Guardian, price volatility is often the most common concern of producers. International markets in particular are effected, as leaders in the industry are scrabmbling to find stability.

According to another report from the USDA, price volatility is something very hard to manege or stabilize. According to 43 percent of producers, policy options from the federal government and state officials are also appropriate, something rare to hear from many producers, especially with such support.

The report mentions three factors as issues and concerns in respect to price (or the margin thereof).

These factors are as follows....

1.) Uncertainty/certainty (Predictability)
2.) Instability/stability
3.) Inadequacy/adequacy

Uncertainty and certainty center around changes in consumer demands and those demands from producers who utilize dairy. As consumer preferences and desires change, it appears that prices are the first to be effected, before many producers can adjust production levels, often causing issues with management and herd levels.

Instability and stability are more impacted by regulation and variations in prices due to cost of feed and transport, in addition to illness and production issues.

Inadequacy and adequacy are impacted by the ability of funds to cover costs.

With factors as variable as these, managers are sometimes strapped in their ability to stabilize their operations, often causing issues related to employment and debt levels.

Some success has been found in managing the volatility on a regional basis, while also understanding the most important thing in term of dairy prices domestically, changes are cyclical.

For years now, dairy costs and demands have changed with the seasons and demands of Americans, with many regions seeing changes with weather, socioeconomic standing and consumer habits. Some cycles run in excess of 34 months, making it a long process to adjust to.

Other issues related to the management of these cycles by producers is understanding consumer woes. Charts available in the USDA report also show large resentment from older consumers, who still have difficultly accepting the inflated price of milk and other dairy products, even if they understand how markets and the value of the dollar have changed.

Therefore, successful producers are making cautious and aware choices in their operations by not overloading their operations with too many employees or head of cattle, with those producers succeeding more than those who take advantage of better prices, when markets may fall just a few weeks later.

If producers are able to balance their operations with cycles from consumers and production operators, then stability can be obtained at a level fit for individual producers.

More than anything, if communicators, marketers and advisers are able to work with dairy producers, then success can be found on larger scales more often than not.