Supply is now chasing demand
March 7, 2022
Ask someone about how farm milk is marketed, and you’ll probably hear something about cooperatives and Federal Milk Marketing Orders. One basic element in any marketing equation is how to best mesh what producers want to sell with what consumers want to buy.
The panelists on the February 24 Hoard’s Dairyman DairyLivestream discussed this shift not strictly from the pricing point of view but rather from the perspective of how demand and supply are determined in today’s industry.
During the webcast sponsored by AMS Galaxy USA, Cornell’s Andy Novakovic described the situation this way.
“Before these growth management plans, demand was always chasing supply,” he explained. “Price had to figure out how far it had to go down or wherever it needed to go, in order to get enough demand to match up with production.”
These growth management plans were born out of a desire to more carefully control the faucet of milk production to better coordinate how much milk can be profitably sold.
“Cooperatives are usually the ones that are owning these processing facilities, and they have said that ‘It's just not profitable to build Class IV plants simply for the purpose of sucking up milk,’” Novakovic detailed. “The profit equation on that isn't good. It just makes more sense, in their view, to restrict growth.”
It’s a change that has been building for years, but certainly, the COVID-19 pandemic and related supply chain disruptions pushed this along as well.
“Now with these growth management plans, and a more overt intervention by primarily cooperative managers, boards of directors, and so on, it's really supply that's chasing demand,” Novakovic continued.
This shift means the important question that producers now need to be asking themselves is, “Where are the next opportunities for demand growth?” If demand is now the obvious way to ensure supply growth, how can we encourage this?
“I think a really big, important question in terms of how much production we're going to have is, ‘How much demand we expect?’” Novakovic offered as a final thought for listeners to consider.
To watch the recording of the February 24 DairyLivestream, go to the link above. The program recording is now also available as an audio-only podcast on Apple Podcasts, Spotify, Google Podcasts, and downloadable from the Hoard’s Dairyman website.