It appears that Congress will approve a one-year extension of the dairy price support program.

For the second time, Congress will extend the program beyond its original expiration date. According to provisions of the 1996 Farm Bill, the dairy price support program was to have ended in December 1999. But, thanks to a couple of one-year extensions, the program will now continue through December 2001.

The price support program will end, sooner or later. Fortunately, we have been given some extra time to adjust.

This year, especially, the price support program has been able to keep prices from falling farther than they would have otherwise. At a recent Dairy Leaders Conference in Williamsburg, Va., the chief economist for USDA estimated that the all-milk price (which includes the different product classes) would have been 30 cents to 50 cents lower this year without the price support program. That estimate is based on the following assumptions:

  • The government will purchase about 480 million pounds of nonfat dry milk during the 2000 fiscal year. Without those purchases, the price of nonfat dry milk would have averaged 10 cents per pound lower. A 10-cent drop in the price of nonfat dry milk would lower the value of Class I, Class II and Class IV milk by 80 cents to 85 cents per hundredweight.
  • Class I, Class II and Class IV account for about 50 percent of all milk use. (Class III accounts for the remainder.) Therefore, the all-milk price would have fallen by about 40 cents per hundredweight.

Net government payments for dairy programs could reach $700 million this year, including $123 million in market loss assistance payments. That’s much higher than the $69 million spent in the 1997 fiscal year and the $291 spent in the 1998 fiscal year.

Sooner or later, Congress is going to pull the plug on the price support program — especially if government payments continue to escalate at such a fast rate.

Plan for a future without government price supports. Make your price projections accordingly. Then, be pleasantly surprised if the price support program is continued for another year or two.

Perhaps the best comment at the Dairy Leaders Conference came from Jerry Kozak, chief executive officer of the National Milk Producers Federation. He suggested that the dairy industry should take a much more comprehensive look at government policy when the 2002 Farm Bill comes up for debate. Rather than simply looking at the Farm Bill as a milk-pricing vehicle, as we have done in the past, we need to consider a number of other issues that all contribute to the producer’s bottom-line. Those issues include animal welfare and environmental policy.

Our thinking must evolve past the price support program to some other issues down the road.