Saturday, May 12, 2007

Got Milk?” ( California Milk Advisory Board and lead into Bloomberg article)

Those of you following this blog for a while know about my rants on the impact of higher oil prices, and declining availability of oil, on food prices and availability. (Economists might prefer the word “scarcity”, but I doubt our politicians would be happy about the use of “scarcity” and “food” in the same sentence.) But unbeknownst to many, we have a MILK shortage in the offing. Milk is a corn derivative, and corn is an oil derivative. This was reported today by Bloomberg news:

“Milk prices worldwide are rising at the fastest rate ever and won't be falling anytime soon because of growing demand in China and Latin America and dwindling government supplies.

Dairy farmers have failed to keep pace with a 3 percent increase in annual milk consumption, according to Rabobank Groep in the Netherlands, the world's biggest agricultural lender. Reduced subsidies eliminated milk surpluses in Europe and slowed production growth in the U.S., government data show. The rally started last year after Australia reduced exports because of its worst drought in a century.

``Over the next several months we're going to see some pretty strong prices on all milk,'' said Larry Salathe, an economist and dairy expert at the U.S. Department of Agriculture in Washington. Production needed to bring prices down ``takes at least several months, usually a year to two years, to come.''

Skim-milk powder, the benchmark for world trade, has risen 60 percent in six months to a record $1.58 a pound May 4 on the Chicago Mercantile Exchange, seven times higher than the five- year average.

During the first five months last year, prices fell 14 percent. Fluid milk futures on the exchange advanced to a record $19.15 on May 3 and have risen 63 percent in the past year. The commodity traded at $18.75 on Friday.” - Bloomberg New, May 14, 2007

Tradable milk (skim-milk powder) is up 60% in 6 months. Corn doubled in the past 2 years. Wheat has nearly doubled during that period. The average retail price of a gallon of whole milk in U.S. grocery stores was $3.32 last month (April), right in line with its historical relationship to retail gasoline, which was just over $3 retail (milk has sold, for the most part, at 110- 125% of the price of gasoline since 1960, data from Illinois farm bureau). The correlation between the prices of bread, eggs and milk is very high. It seems it would follow that when the price of gasoline/diesel heads to $4, $5, $6 per gallon at the pump, that milk, eggs, and bread are headed 25%, 50%, 100% higher from today’s higher prices.

But let’s forget prices for a moment, and let’s talk availability:

“U.S. inventories of butter, cheese and dry milk peaked at more than 2.7 billion pounds in 1983. The government that year spent $2.5 billion on surplus dairy products to support prices and farmer income. Today, the U.S. has no surplus after selling the 27 million pounds it held in 2005, USDA data show.

European warehouses, which had 200,000 tons of milk powder in 2003, are empty, according to Erhard Richarts, dairy expert with the Bonn-based market and price reporting agency ZMP. Skim milk powder exports from Europe fell to 84,000 tons last year from 194,000 tons in 2005, he said.

The European Union said in March that only ``residual quantities'' of butter are left in member countries after a sale of some 6,000 tons that month.” Bloomberg news May 14, 2007

“No surplus”, “European warehouses… are empty”, “residual quantities”???!!! I don’t think I need to hype those statements. Here comes the kicker:

“The world consumes about 1.9 billion liters of milk a day, enough to fill five supertankers, based on estimates by Rabobank. The 14 percent jump in milk demand during the past seven years outpaced the 13 percent rise in oil use, according to estimates from the International Energy Agency in Paris.” Bloomberg News May 14, 2007

The writer had the cerebral capacity to link oil production to milk production!!! Halleluiah!!! Is it too much to think that the mainstream media might be getting it? Maybe. If oil production has peaked, has milk production peaked? DEFINITELY.

Unfortunately, for many more poor children in developing countries, and for poor children right down the street, the concept is not going to be quite so abstract.

Mentatt (at) yahoo (dot) com

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