Friday, April 22, 2005

All Things Financial - A Personal Finance Blog

My friend at AllThingsFinancial asked why the price of milk remains so high? The following is the answer I posted on his site.

Are you or any of your friends on the Dr. Atkins, South Beach or other low carbohydrate diets? I know people who are and this is your answer to the price of milk!

The price of steaks went up when the fad was at its peak. Dairy farmers happened to be suffering at the time and they naturally thinned their herds, selling heifers for beef.

Supply and demand kicked in and here we are. The comments from those who live in areas where the milk price is "stabilized" show the extra barriers the milk market must fight. It takes longer to rationalize markets when there is interference from governments.

New breeding techiques have helped the markets adjust more quickly but it still takes time. The beef market was traditionally an 8 year market from peak to bottom prices. The reason it takes 8 years is the only way to increase a herd is by keeping heifers off the market.

Yesterday, beef tenderloin was selling for 18.99 at our local market. A couple of years ago, the price hit $6.99 on sale.

At $18.99 a farmer does not have to think twice about raising a heifer for the milk dividend or selling for the capital gain.