Current Progressive Dairy digital edition
Advertisement

Catastrophic failure by next issue?

PD Editor Walt Cooley Published on 15 July 2011

By the time you receive this July 21 issue of the magazine, Congress and the President will be at a make-or-break moment on a bargain to raise the debt ceiling and avoid default on American debt, which some say would be “catastrophic.”

Will everything about life look different the next time you receive a Progressive Dairyman ? Is this the end of the world as we know it? I don’t believe so. But it’s interesting to imagine what could be.

advertisement

advertisement

Default could mean higher interest rates, a globally less attractive U.S. dollar and disruption of demand in global and, more importantly, domestic markets. Higher interest rates would challenge our industry, which is already trying to rebuild equity and stability from 2009.

Think credit is hard to come by now? Full recovery is still years away. And don’t forget that 2009 is what many producers agree was the most challenging time they’ve ever had in dairying. Could we really have another 2009 or worse before recovery is possible? ( Click here for more discussion of this topic.)

Let’s admit that the beginning of 2011 has been a decent rebound from 2009 for agricultural producers. I recently read that during the first half of fiscal year 2011, U.S. farm exports reached an all-time high of $75 billion.

USDA Secretary Vilsack recently stated: “March was the highest-grossing month for U.S. agricultural exports ever. During that month alone, U.S. farmers and ranchers exported $13.3 billion worth of U.S. agricultural goods.”

That figure broke the last ag export record set in November 2010, so this boom cycle for producers has been somewhat sustainable. World demand is certainly what’s floating the most recent U.S. milk prices. New export numbers show it is absorbing our supply growth. ( Click here and here to download related pdfs with more detail.)

advertisement

All this would probably go away under a U.S. default. The value of the U.S. dollar would sink. But wait, you say, isn’t the declining value of the dollar what’s contributed to export growth? Yes, contributed but not driven.

Growth in disposable income for food in emerging countries has driven demand growth. Experts predict a U.S. default would, at a minimum, slow or stall and maybe even reverse growth in demand from these countries.

But if default occurs, we’d have even bigger problems with milk price depression from a demand collapse at home. Think if Uncle Sam can’t fund his WIC program, food stamps or other government-assisted food sales.

Families who qualify for WIC can receive from 4 to 6 gallons of milk per month free. With more than 9 million women, infants and children participating in the program, fewer or no more WIC checks would mean a lot of unsold milk put back on the market.

Costs for consumers paying full price for food would also increase, as would costs for all goods and inputs. Think you’re frustrated with gas and diesel prices now? Default would make that situation worse.

So many variables could be impacted by a default that it’s hard to imagine all of the ways and to what extent they would negatively impact dairy producers and milk prices specifically. But very few would be happy with a default.

advertisement

The world didn’t end May 21, and I don’t think it will end August 2 either. But the looming possibility of financial calamity is certainly a reality check. Profitable milk prices are always fragile, and the threat of calamity should make everyone at least a little more grateful for the most recent decent ones. PD

  • Walt Cooley

  • Editor-in-chief
  • Progressive Dairyman
  • Email Walt Cooley

LATEST BLOG

LATEST NEWS