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Economic Analysis of the Dairy Situation¹

Extension Economist, Dairy Marketing, Division of Agricultural Economics Programs, Federal Extension Service, U. S. Department of Agriculture, Washington 25, D. C.

ABSTRACT

Dairy leaders have expressed an increasing interest in more economic analysis of the dairy industry to supplement the work in production and quality. Many of us feel a bit uncertain in dealing with principles of economics. Two purposes of this paper are: (1) To encourage greater use of economics by persons with other major responsibilities. (2) To suggest a simplified approach to looking ahead at the demand for milk and the probable supply.

One of the basic principles of economics is the relationship of supply and demand and price determination. For a general guide, we can express it this way:

A rising price—encourages production but discourages consumption

A falling price—discourages production but encourages consumption.

Pricing milk for fluid use is complicated. The forces of supply and demand are modified or hidden by such factors as the nature of the product, the requirements to be met in production, the various uses, seasonality of production, location of production, the bargaining position of producers and buyers, outlets for surplus milk, pooling arrangements, and production bases.

¹ Presented at the Twenty-fourth Annual Dairy Irechnalogy Conference, The Ohio State University, Oolumbus, February 6, 1957.