The dairy industry’s financial bleeding WILL stop

Hoard's Dairyman: 

The dairy industry’s financial bleeding WILL stop

Date: 
Fri, 05/25/2012

We just don’t know exactly when.

by Hoard's Dairyman staff

Economist Herbert Stein (1916-1999) had a keen wit and ability to sum up complex financial concepts in simple ways. A former chairman of the White House Council of Economic Advisors, he is best remembered for saying, “If something can’t go on forever, it will stop”. It is now widely known as “Herb Stein’s Law.”

What does this have to do with dairying? Herb’s law contains a backhanded message of hope for today’s milk producers as they struggle with the gap between the cost of production and milk prices, and face perhaps even greater uncertainty about their financial survival than in 2009.

Visiting with several Western dairy owners this month, they said with surprising candor that they are as worried about 2012 as any year in their careers. It would be nice to disagree with them, but it does look like 2012 could be worse. Here are four reasons why:

1. Little or no equity.
2. Emotional “battle fatigue” felt by producers.
3. Fewer and less patient lenders.
4. Great beef prices.

A subtle message from Herb’s law is, in a free market economy, supply and demand will always force each other into relative equilibrium. Eventually. Unfortunately, something else that Herb also used to say is: “Economists are very good at saying that something cannot go on forever, but not so good at saying when it will stop.”

In other words, there’s no telling how long this round of financial chicken will last. A bigger question is, will the game ever end? Maybe the best we can hope for this time is a round of bloodletting that is intense but brief, rather than long and lingering, so the wounds suffered by those who survive can heal before it happens again.

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