Many farmers have a hard time believing they CAN actually make a difference in their milk price by joining DPA. They fear that even if they join, enough of their neighbors will not participate for DPA to achieve effectiveness. The answer to this question is not as many need to join as you might think.
A cheesemaker has shared with us his experience of several years ago when he needed to source additional cheese to cover his sales. He went to the Chicago Mercantile Exchange in search of 3 loads of cheese. Over the course of a week, he raised the price 10 cents while trying to source these loads. He then received a phone call from a major company telling him to just call them if he needs cheese…not to raise the price on the CME.
Because of this, we feel that the removal of just one load per week in a way that impacts the daily cash market would have a significant impact on CME price. As we know, the CME cheddar price strongly correlates to Class 3 milk, and is the starting point of price discovery for our milk checks. Keep in mind the cheese market only has to improve 1 cent to provide a 10 cent increase in milk prices.
So, what would it cost to buy a load of cheese every week?
To support a cheese price of $2 per lb. (significantly above today’s market, a price that equates to $20 milk), it would cost $80,000 per load. $80,000 x 52 weeks in a year = $4,160,000.
With farmers contributing at a 10 cents/cwt DPA membership level, how much of the US milk supply needs to participate to attain this goal?
In 2016, there were 212 billion pounds of milk produced by US farmers. This is 2,120,000,000 hundredweights. 100% of 2,120,000,000 hundredweights each paying 10 cents would result in a pool of $212 million. We only need $4,160,000 to purchase one load per week. 4,160,000 / 212,000,000 = 0.0196. Only 1.96% of the milk supply needs to participate! We can do this!
Let’s get really crazy and think about what buying a load of cheese every day might do to the market. There are only 5 trading days in a week at most, so the amount required would be $20,800,000. Does this seem like too lofty a goal? It would only require 10 cent participation of 9.81% of the US milk supply.