Secretariat and $20 Milk
Secretariat is considered the greatest race horse of all time. I had the pleasure of seeing him in his paddock when I was young and he was retired. Even at an advanced age he was spectacular to see.
I went back and watched the races he ran in 1973 when he won the triple crown. In the first race, the Kentucky Derby, he was held back by his jockey, Ronnie Turcott, before winning by a few lengths at the end. In the Preakness, the second race, the same thing happened although he won by a larger margin.
In the third race, the Belmont, Secretariat ran what is widely considered the greatest race run by any horse in history. Turcott didn’t hold his horse back. He blazed a mile-and-a-half in a pace that has never and probably won’t ever be broken. Turcott let him run, and run he did.
In many ways, dairy producers over the past few years have been like Secretariat in those first two races. Held back by the burden of low milk prices, poor margins, tight processing capacity and labor issues. Lenders have been willing to lend to improve efficiency, if borrowers are credit worthy. Lending for expansion has slowed down, and now occurs only with solid verification that a processor will take the extra milk.
This week at the MILK Business Conference a panel of experts predicted that the industry would see $20/cwt milk prices within the next five years. You could almost feel the producers in the audience straining at the bit, getting ready to take off even as those words still hung in the air.
That level of milk price would certainly be welcomed. Producers could pay down debt and regain equity, or maybe just be able to pay bills again. But as normally happens when prices go up, a number of producers will get bigger. They’ll add cows, add barns, add locations and make more milk. It’s the American way.
But one thing scares me about such good news, and I go back to when Secretariat won the Belmont. In that race another horse, Sham, was neck-and-neck with Secretariat for the first half of the race. His jockey was letting him run, too, under the assumption that he could keep up with and eventually beat the great Secretariat. But Sham couldn’t keep up with the blistering pace. He eventually fell further and further behind, and finished the race in fifth place.
Higher prices would be wonderful, but can producers keep up with the pace? There would be more milk in an already saturated market, a market where even now processors are fighting to keep up. “We’ll finish investing $450 million in a new plant, and we’ll have to start on another plant once that’s finished because we’ll already be at capacity on the new plant,” Rick Smith, CEO of Dairy Farmers of America, said at the MILK Business Conference.
My fear is that higher prices will lead to more production which will lead us right back to where we started, which is the extended low-price period we are currently suffering through. Or, worse yet, producers anticipating $20 milk will hold on to try and re-capture some equity, only to burn through equity and be in a worse position if, God forbid, $20 milk doesn’t happen.
Believe me, I’m all for price relief. God knows we need it. But when prices get better, my fear is that our industry will end up like Sham, who ran too fast for too long and ended up at the back of the pack. Perhaps producers can learn to pace themselves, making wise decisions that lead to stronger businesses and a stronger industry as a whole. Not everyone will win, but at least they will be in the running for the entire race.
How would you react to a $20/cwt milk price? I’d like to know. Drop me a note at [email protected]