When milk prices drop shouldn’t the price of what’s producing it?
Simple economics tells us that when we have a surplus, prices can drop, and when we have a demand greater than the supply the product becomes more valuable and increases.
So what does that have to do with the prices of cows?
Let’s think of it like a shopper, shall we?
I go to the store. I buy milk. I buy cheese and grab that pint of chocolate chip cookie dough ice cream. I may even grumble at paying $3.59 for my gallon of milk.
The factory should just produce more milk, right?
Go tell it to the cow!
It’s never a good idea to assume. So, we’ll say ‘most’ people know milk comes from cows.
Now, let’s think of it as a farmer (or the farmer’s wife, or daughter… you choose).
If the price of milk drops. It drops for the farmer. Hence, the pay check just got smaller.
So lower milk prices means the farmer needs to ship more milk in order to get a bigger pay check.
The farmer most likely has a family that needs fed, too.
It’s not like he can go out to the cows in the barn and say, “My dearest cows, I know your doing the best you can to help fill the tank, but could you eat a little more and produce more milk this week? Little Joe needs a new pair of glasses.”
While cows are known to respond to some commands, a pep talk isn’t one of them.
Which leaves the dairy farmer with a choice:
1. Buy more cows
2. Cut back on the feed bill (in the barn and in the house)
What do you think the farmer chooses?
What would you choose?
My guess is, the farmer buys more cows.
Seeing that the price of milk has fallen for all the milk producers, and not just the farmer, there are going to be many farmers looking to add a few more cows to their herd.
There’s that economics thing again. Demand = higher price.
Cows are a lot like Apple products ( I mention this due to the new release of Apple’s smart watch). Remember when the iphone came out and everyone stood in line and Apple ran out? There isn’t always enough of a product to go around.
Cows are God’s creation. They cost about three to four times more than a smart watch or even an iphone for that matter.
This is good news for those selling cows, bad news for the dairy farmers, and has nothing to do with the price of milk in the store.
But it will.
Anyone want to forecast the economics on that in the future?