Mark Stephenson gives us insight to the dairy market game.
3:05 – Total Time
0:19 – Types of market cycles
0:42 – Long term cycles
1:01 – Cycle predictability
1:38 – Adapting to market cycles
2:21 – Anticipating cycle in 2015-16
2:32 – How low will milk price go
2:56 – Lead out
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Sevie Kenyon: Mark we’re going to talk about cycles in the dairy market. Go ahead and tell us what the cycle is?
Mark Stephenson: Well you can have a number of different kinds of cycles, and we do actually in the diary industry. One of them is just an annual cycle. That is that over time we’ve seen that prices tend to be higher in the fall, when we’re relatively short of milk, and lower in the spring when we have our flush of milk.
Sevie Kenyon: And that’s an annual cycle? Is there a broader sense of looking at cycles?
Mark Stephenson: The cycle that’s become dominate has been one that’s just a little bit more than three years in length. We’re seeing some pretty big peaks, and occasionally some fairy low troughs on milk prices. And those are happening with a regularity that is somewhat predictable.
Sevie Kenyon: Can you describe that predictability?
Mark Stephenson: A good example is that for whatever reason if we had a really big milk price, and a highly profitable year, it’s a signal to a dairy farmer that says the market wants more milk. And by the time that you make a decision to not cull a cow that you might have otherwise, to get that extra calf out of her, and raise the calf, and have her bred, and that calf is now in the herd as a milking cow. You know it’s about three years in length. So we think that some of this is coming from the decisions that have a time lag on it.
Sevie Kenyon: If people are aware of these cycles, is there anything they can do to help themselves?
Mark Stephenson: We’ve had a few farms around the country that have I think understood this. They were on top of these cycles pretty early on, and they’ve had a chance to ride through a couple of them. As an example, when we’re going through a low milk price, that’s usually a tough time for dairy famers, but it’s also a tough time for a lot of the rest of the dairy industry support structure. So for example, if you wanted to build a barn during that time, you can probably find a contractor who is willing to work for something less than they would at a time when everybody wants to build a barn. Many of these farms have been building barns during those time periods, filling them with animals, and now they’ve got all those cows and milk at the time hitting peak crisis.
Sevie Kenyon: How do you go about anticipating these cycles?
Mark Stephenson: I would forecast that on though 2015 ad into 2016 we’ll probably hit the trough of this current price cycle.
Sevie Kenyon: The logical question of that is, how bad will it be?
Mark Stephenson: Well that’s the real question isn’t it. Well we don’t know all of the factors that can be involved in that. If for instance in 2009 was not just dairy producers responding, we had a global recession. You know there are factors that go well beyond the dairy industry that can impact that. You know I think that it’s going to be low, it’s not going to be 2009 low, but I wouldn’t be surprised if we were seeing thirteen-dollar milk again.
Sevie Kenyon: We’ve been visiting with Mark Stephenson, Department of Agricultural and Applied Economics, University of Wisconsin and the College of Agricultural and Life Sciences, Madison, Wisconsin, and I am Sevie Kenyon.