The price of a gallon of milk (copy)
The price of a gallon of milk is a barometer for many things in our economy. Even the placement of milk in your local grocery store says a great deal about the value placed on this food staple. Have you ever stopped to take note where the dairy case is located? Almost without fail, it is positioned in the back of the store to the left of the entrance.
After years of study, it was found that most people upon entering the grocery store get a buggy and bare right, circling into the fruits and vegetable and the bread aisle. The dairy case in the back of the store tempts shoppers to pass by as many products as possible before grabbing the jug of milk you came in to buy. Therefore, the price of milk is an important driver to the store not only as a food product but also as a promotional product.
The price of milk at the farm gate is a different story entirely. Historically, milk was the “odd man out” of agricultural products given that it was a fluid and had a limited shelf life in its raw form. Daily auctions and bidding for milk was just too problematic and unfair to gain traction as a means to help farmers get a fair price. For many years, especially during the Great Depression and into World War II, farmers were forced to take whatever the buyers were willing to give. This led to the formation of many of the dairy cooperatives and wholesale milk buyers that farmers operate under today.
Again, milk was and is an important staple to our diets and prudence suggested that some governance of milk pricing was needed to ensure a steady supply of milk year-round. The Federal Order milk pay price system was created was based on the Wisconsin Cheese Market and how far the farm was from Green Bay, Wisconsin. The further a farm was from Wisconsin the more costly the milk, to reflect transportation costs involved in moving a fluid produce. This system stood until 1996, when the Farm Bill called for an end to price supplements and a move toward a farm price that more clearly reflected the price of milk in the store.
The sticking point in any attempt to bring “fairness” into the pricing of milk is the need to balance supply and demand. Milk tends to flow seasonally and demand ebbs and flows due to many factors (school in session, holiday travel or lack thereof). As you might guess from recent stories about dairy farm price fluctuations, we still are a long way from balancing supply and demand.
Today, the actual calculation of farm pay price is complicated to the point of being unreasonable to print here, but I would like to share some important factors with you that influence the price paid to our dairy farming families.
First is “utilization”. Utilization addresses how milk is used in the household. Class 1 milk is fluid milk consumed as a drink. This milk has the highest standards of quality and garners the highest price to the farmer. Class 2 milk is used for frozen products like ice cream, milk shakes, or sour cream. Class 3 milk is utilized to produce the cheeses and Class 4 milk is used for the production of butter, powdered milk, and any other use not covered above. Generally, as the number of the class increases, the price decreases; however, this is not always the case.
Class 3 and 4 milk price is studied every two weeks by the National Agricultural Statistics Service (NASS), a branch of the United States Department of Agriculture (USDA). The class which is higher in value at the time of pricing is determined to be the “mover” or the class that sets the actual pay price for the milk for the produced during the past two weeks. Milk buyers/marketers must pay at least this price set by the USDA.
After the milk leaves the farm, it is processed and shipped to retailers for distribution to consumers. The price paid at the store by end-users more accurately based on product image, shipping and handling, scarcity or demand for the product, and local store competition.
Upcoming Events
June 11-13--OGATA Summer Show, Abingdon.
June 16-19--State 4-H Congress.
July 7--VQA Sale.
July 13--VQA Take Up YBD.
Aug. 4 --Tri State Beef Conference.
Aug. 18--VQA Sale.
Aug. 24--VQA Steer Take Up.
Aug 26--VQA Heifer Take Up.
Dr. Andy Overbay is the agriculture and natural resources extension agent for Smyth County.
