THE BLOG
06/16/2014 08:33 am ET | Updated Aug 16, 2014

The White Stuff That Comes From Cows

One of the heroes of early cinema was Gene Autry, the singing cowboy, who projected an image of clean living for a generation of youngsters like myself. I remember one memorable scene in which he marched into a saloon and ordered a glass of milk. When the bartender seemed confused, he said, "You know, the white stuff that comes from cows."

While I devote most of my attention to manufacturing, it is worth noting that other sectors of our economy are doing well, and few better than the dairy industry. Not too long ago Uncle Sam was spending some $2 billion a year to subsidize the dairy industry while imposing quotas to discourage foreign competition. The government ended up buying mountains of excess cheese, butter and nonfat dry milk that was sold at cut-rate prices, donated to food banks or left to rot. It always pained me to read about that -- our tax dollars being spent to buy dairy products that were left to rot. It seemed a searing indictment of big government, but at least it kept many dairy farmers going who are now still around to take advantage of the current market.

Exploding demand for milk and dairy products around the world and especially in China has created a dynamic market. "China buying has been through the roof," said Alan Levitt, spokesman for the U.S. Dairy Export Council, as reported in Bloomberg/Newsweek. "We shifted from a period of structural oversupply to structural undersupply."

Indeed we have. The average price of raw milk in April was $25.30 per hundred pounds, an all-time high, driven mainly by soaring foreign demand. Just five years ago it was about half of that. In the first quarter of 2014, the value of dairy exports rose 39 percent. Meanwhile, our major competitor in milk, New Zealand, has lost much of its capacity because of a prolonged drought. At the same time the costs of producing milk in the United States, notably feed prices for cows, have remained stable.

Predictably, dairy farmers are expanding their herds when not so long ago the government was paying them to kill them off. In April, the Dairy Farmers of America, the largest such cooperative in the U.S., opened a plant in Nevada to produce whole milk powder for foreign markets, the first such plant ever built in this country. In the past, we have produced nonfat-milk powder which was always a hard sell, but not whole milk powder.

Of course, when any market grows like this there are losers. The manufacturers who process dairy foods are staggering under the rising cost of milk, as are consumers who are today paying $3.69 for a gallon of the white stuff, compared to $3.43 a year ago.

And all the while the legacy of Gene Autry lives on. His biggest hit songs were "Back in the Saddle Again" and "Rudolph The Red-Nosed Reindeer, but he also sang a delightful ditty named "Sioux City Sue." I remember it well: "Her hair is red, her eyes are blue; I'd swap my horse and dog for you." Today that bartender would probably urge Autry to take a shot of whiskey instead of milk. It would be cheaper.

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Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking engagements. June 2014