Dairy prices are following a cyclical trend started in the 1990s, according to Andrew Novakovic, professor in the College of Agriculture and Life Science’s Dyson School of Applied Economics and Management at Cornell University.
“Since the mid-1990s, the farm price of milk has fluctuated in a pronounced cyclical pattern,” Novakovic said. “When milk prices are heading down, farmers express concern that retail prices won't follow and thereby make it harder to get supply and demand back into balance around more average prices. When they are heading up, downstream industry and consumer voices worry about impacts on affordability and consumption.
“In early 2014, we are hitting a new high for the price of milk paid by fluid milk processors,” he explained. “A 10% change in the farm value of milk will equate to about a 6% change in the retail price for milk, in today's economic environment.”
“Farm values for milk are being impacted today primarily by world market conditions that have driven demand ahead of supply,” Novakovic said. “U.S. market conditions portend increasing milk production over the next few months that will likely bring prices down somewhat later this year. However, the bigger news is that demand in China and other emerging markets is exerting an effect on the value of milk all over the planet, including the U.S.”
Novakovic’s research focuses on the U.S. dairy industry. A paper detailing cyclical trends, titled: “Comparing the Prices of Milk Across the Dairy Value Chain” is available for download.