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Milk Price Cycles in the U.S. Dairy Supply Chain and Their Management Implications

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  • Charles F. Nicholson
  • Mark W. Stephenson

Abstract

ABSTRACT We develop a structural time‐series model based on state‐space methods and including feed costs as an exogenous regressor to assess the nature of cyclical behavior of the quarterly U.S. all‐milk price during 1996 to 2014. Although deterministic trend and seasonal price movements are present, a stochastic large‐amplitude cycle with a period of 3.3 years is the predominant source of variation in the U.S. all‐milk price during the period analyzed. These cycles are consistent with the hypothesis that supply chain managers make decisions based on bounded rationality, with limited supply chain coordination. The presence of price cycles in the U.S. dairy industry has management implications for dairy farmers, dairy processors, exporters, and food retailers. Forecasting and analytical models of U.S. farm milk prices should be designed to account for cyclical farm milk price behavior.

Suggested Citation

  • Charles F. Nicholson & Mark W. Stephenson, 2015. "Milk Price Cycles in the U.S. Dairy Supply Chain and Their Management Implications," Agribusiness, John Wiley & Sons, Ltd., vol. 31(4), pages 507-520, October.
    • Handle: RePEc:wly:agribz:v:31:y:2015:i:4:p:507-520
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    File URL: http://hdl.handle.net/10.1002/agr.21416
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    1. Bergmann, Dennis & O’Connor, Declan & Thümmel, Andreas, 2013. "A decomposition analysis of the EU farm gate milk price," 87th Annual Conference, April 8-10, 2013, Warwick University, Coventry, UK 158702, Agricultural Economics Society.
    2. Durbin, James & Koopman, Siem Jan, 2012. "Time Series Analysis by State Space Methods," OUP Catalogue, Oxford University Press, edition 2, number 9780199641178, Decembrie.
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    5. Chidmi, Benaissa & Fadiga, Mohamadou L., 2007. "Dynamics of Price-Cost Margins in the U.S. Meat Industry," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9745, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Nicholson, Charles F. & Stephenson, Mark W., 2014. "Dynamic Market Impacts of the Dairy Margin Protection Program," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 32(2).
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    Cited by:

    1. Huffaker, R. & Canavari, M. & Muñoz-Carpena, R., 2018. "Distinguishing between endogenous and exogenous price volatility in food security assessment: An empirical nonlinear dynamics approach," Agricultural Systems, Elsevier, vol. 160(C), pages 98-109.
    2. Alfons Weersink & Michael von Massow & Brendan McDougall & Nicholas Bannon, 2021. "Re‐examining the implications of COVID‐19 on the Canadian dairy and poultry sectors," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(2), pages 215-224, June.
    3. Montserrat Costa†Font & Cesar Revoredo†Giha, 2018. "An empirical analysis of U.K. milk contract prices 2004–2016," Agribusiness, John Wiley & Sons, Ltd., vol. 34(1), pages 112-141, December.
    4. Roel Jongeneel & Ana Gonzalez-Martinez, 2022. "EU Dairy after the Quota Abolition: Inelastic Asymmetric Price Responsiveness and Adverse Milk Supply during Crisis Time," Agriculture, MDPI, vol. 12(12), pages 1-16, November.
    5. Fan, Zaifeng & Jump, Jeff & Tse, Yiuman & Yu, Linda, 2023. "Volatility in US dairy futures markets," Journal of Commodity Markets, Elsevier, vol. 29(C).
    6. Bjørn Gunnar Hansen & Yushu Li, 2017. "An Analysis of Past World Market Prices of Feed and Milk and Predictions for the Future," Agribusiness, John Wiley & Sons, Ltd., vol. 33(2), pages 175-193, April.
    7. Jingjing Wang & Xiaoyang Wang & Xiaohua Yu, 2023. "Shocks, cycles and adjustments: The case of China's Hog Market under external shocks," Agribusiness, John Wiley & Sons, Ltd., vol. 39(3), pages 703-726, July.
    8. Aisha Hassan & Li Cui-Xia & Naveed Ahmad & Muzaffar Iqbal & Kramat Hussain & Muhammad Ishtiaq & Maira Abrar, 2021. "Safety Failure Factors Affecting Dairy Supply Chain: Insights from a Developing Economy," Sustainability, MDPI, vol. 13(17), pages 1-24, August.
    9. Theodoros Skevas & Wyatt Thompson & Scott Brown & Victor E. Cabrera, 2021. "Milk Income over Feed Cost Margin, Margin Protection Program, and Farm Finances for a Sample of Wisconsin Dairies in 2000–2017," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 43(4), pages 1638-1657, December.

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