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

Charles F. Nicholson and Mark W. Stephenson

Agribusiness, 2015, vol. 31, issue 4, 507-520

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.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:wly:agribz:v:31:y:2015:i:4:p:507-520

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