Excess milk production may bode well for the consumer, but it poses a serious problem for the dairy industry, a Utah State University economist said.
"Higher prices, which prevailed in late 1989 and early 1990, seem now to have been an interlude in a long-term trend toward lower milk prices," said Jay C. Andersen, Extension economics specialist and professor in the economics department.He spoke Friday in Salt Lake City during an Agricultural Outlook conference sponsored by USU Cooperative Extension Service, USU department of economics and the Utah Bankers Association.
Andersen said early attempts to cut back production in the milk industry have failed.
In 1985 a plan called the Dairy Termination Program was initiated in hopes of reducing production by reducing the number of producing cows. The program also provided for cuts in the support price for milk to reduce production incentives, he said.
"In retrospect, the program failed to accomplish all that had been hoped since milk production has again increased to troublesome levels," he said.
In Utah, for example, even though the milk cow herd was reduced by more than 10 percent, milk production increased by more than three percent from 1985 to 1989. In five years, production per cow has increased by about 12 percent, he said.
Andersen said part of the explanation for the increased production is found in increased use of concentrates. He said concentrates have remained inexpensive relative to milk prices.
A second major factor in excess production capacity is the continuing government price support incentive for butterfat production, he said.
Cows produce twice as much milk as they did 30 years ago. They also produce twice as much fat. Consumers have dramatically reduced demand for butterfat, yet, the government continues to provide incentives to produce fat, he said.
"Changes in fat content can only come slowly, but they will never happen if incentives are misplaced," he said. "Butter now is the major item in Commodity Credit Corporation stocks."
He said the government's national milk support price and the market prices from 1970 to the present show a history of support prices and market prices being closely related. That changed, however, in 1989 and 1990. "The forecast is somewhat uncertain, but most indicators and most analysts look for increased production exerting downward pressure on prices and increases in government stocks," he said.
"For a year or so, at least, we should expect prices down around the support level."