A few days ago, I was reading a news item from the Associated Press telling of the reasons that milk prices were increasing. The reason was primarily due to supply and demand. Demand was increasing due to improving diets in China and elsewhere in Asia while supply was falling due to drought in Australia and New Zealand and declining milk output in Europe.
I continued reading and everything was making sense until I came to the part about biofuels raising the price of corn and because of higher feed prices, farmers are raising the price of their milk.
What? Milk farmers are raising their prices? When did that happen? Where was I that I did not hear about farmers being able to raise their prices?
As a farmer who believes every bushel of grain and pound of beef that ever was sold off this farm was sold too cheaply, you mean we can raise prices? If that is so, I am pricing my corn at $4.00 a bushel and soybeans at $10.00. Next week, I am going to buy a new combine and a couple new tractors and to pay for them, I will have to raise my prices so my $4 corn and $10 soybeans of today are cheap.
Since, according to the Associated Press, we farmers can raise our prices, I will put a sign at the end of my driveway with the price I am selling my corn and soybeans for and buyers can pull in and buy just as we buy our gasoline. There is the price, pay it or keep moving.
Okay, I know I am getting carried away. I was disappointed to read that the Associated Press writer thinks farmers can set prices for their products. Farmers have always sold into the market, a market that moves up or down according to supply and demand.
Milk is a good example of another problem of many agricultural products. Dairies produce milk every day regardless of price and as a perishable needs to be sold. There is no storing of milk in a bin waiting for improved prices as we do with corn and soybeans. Fruit, vegetables, and livestock for meat, when ready for market, cannot be put on hold waiting for better times.
There are farmers and farm organizations that want to set prices for products and want to accomplish this by controlling the supply. To control the supply it is necessary to control the farmers and that borders on impossible. Farmers value their independence and that is one of the primary reasons farming is their chosen occupation. Nobody is going to tell them what to do.
It is disappointing the Associated Press writer would put in a sentence telling how farmers have raised their prices as it creates a misconception that farmers can grow a product and demand a price.
The market we operate in is not a totally free market as a market needs discipline and regulation to keep everyone honest to maintain integrity in the market. The amount of regulation depends on how much government intervention you believe is needed.
Rather than getting further into economics, I want to highlight another problem of the Associated Press story. That problem is that we have not done a good job of informing consumers that agriculture is like much of America where buyers and sellers conducting hundreds or thousands of transactions each day set prices. Those transactions establish a market, markets that are a key component of a free enterprise system.