Thursday, June 25, 2009

$5 milk?!

Maybe you’ve heard the latest sensational news: milk could cost $5 a gallon by the end of the summer. Scary, huh? Chalk it up to the economy, the ethanol craze, or whatever reason one can fabricate to blame. Nonetheless, these even a more frightening reality at heart: the poor state of the dairy industry today. While you might pay $5 at the grocery store, only a fraction of that goes to the dairy farmer.

So, let’s figure up just how much the farmer is receiving per gallon. Before we do that, here’s a quick description of how milk is marketed. Dairy producers are paid per the “hundred-weight,” or per one hundred pounds of milk. There are 8.7 pounds of milk in one gallon. Currently, to make the math a little easier, we’ll round up and say that class three milk (fluid milk- the good stuff you buy in the plastic jugs) is going for $10 a hundredweight. Breaking that down, here’s an approximation of what the farmer is getting for a gallon of milk:

.87 __$__   =   __$10__   x   __8.7lbs__

        gal          100lbs             1gal

That’s right, for every gallon of milk you buy at the grocery store, a whopping 87 cents goes to the farmer. Where does the rest go? The supermarket’s pocket, the processor gets a cut, and you can’t forget the trucking company. Worse yet, though you may be paying $5 for a gallon of milk this summer, the futures market shows only a slight increase in the farmer’s share. Therefore, there will be larger profits for everyone except the farmer.

Now, not to continue to be a bearer of bad news, but that 87 cents isn’t even profit for the farmer. Far from it. By the time you take out labor costs, feed costs, cow healthcare, and other overhead costs, many dairy farmers are barely sliding by. They are using profits from past years to ride out the wave of losing money this year.

So, what can be done to solve this crisis in the dairy industry? We wish we knew. For now, it’s a matter of riding it on good management practices and doing more with less until the markets come around.

No comments:

Post a Comment