U.S. Dairy Markets Since 1970

A lthough milk and dairy product prices are influenced by a Federal price support program, market prices are not determined in a vacuum, void of ef fects exerted by supply and demand con ditions.Prices received by farmers, processors, and marketing firms and prices paid by consumers are, to a large extent, jointly determined by the availability of raw milk supplies and prevailing demands for fluid and manufactured dairy products.However, because milk production is highest in the spring while consumption is strongest in the fall, the Federal price support program attempts to smooth these seasonal aberrations in production and demand by removing excess supplies from the market in the form of butter, American cheese, and nonfat dry milk (see National Food Review, July-Sept 1988,for a description of U.S. dairy programs).As a result, farmers receive relatively stable prices throughout the year, and consumers have an adequate supply of milk to meet their needs.In the 1970's, market conditions were such that supply and demand were fairly balanced, and Government purchases of excess supplies were small.Increases in the use of milk and dairy products were met by either more production or smaller Government removals of dairy products.Increases in retail dairy prices were con sistently smaller than rises in all food prices and the Consumer Price Index (CPI).However, the dominant pattern of the 1980's has been the willingness of dairy farmers to produce more milk at lower real (adjusted for inflation) prices (figure]).Generally favorable prices, incomes, and expanded promotion by the dairy in dustry boosted use at an unprecedented