The 'dairy cliff' could loom again

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Late last year, consumers were warned that milk prices could double because of the “dairy cliff.”

The problem was averted when Congress passed stop-gap legislation on Jan. 1. People gave a sigh of relief, thinking the issue would be addressed in a new farm bill later this year. But with last Thursday’s dramatic rejection of a farm bill by the U.S. House of Representatives, the “dairy cliff” could loom again.

 It could conceivably happen next Jan. 1.

“…it’s still six months away,” points out Chris Galen, senior vice president of communications at the National Milk Producers Federation. “But given that the House didn’t pass a new farm bill, and the Senate won’t pass an extension of current programs, we may be talking more about the dairy cliff later this year, just as we did in 2012,” he says.

Without a new farm bill or extension of the old one, dairy policy could revert to a 1949 law (also known as permanent law). That, in turn, will increase federal price supports for cheese, butter and milk powder to 75 percent to 90 percent of parity (based on the purchasing power that farmers had between 1910 and 1914). If that happens, milk prices could go to $38 to $42 per hundredweight.

While farmers might look at $38 to $42 milk as a blessing, a doubling of milk prices in the supermarket would impact consumers in a negative way, hurting sales.

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PA  |  June, 26, 2013 at 08:39 AM

The premise that store milk prices will double is completely false. If milk is (approximately) $4 / gallon currently, the store price is $46/cwt assuming 11.5 gallons per cwt. If farmers get $20 more and all that is passed to consumers, that will make it $66/cwt, or about $5.75 per gallon. A steep rise - yes. Will that hurt consumption - absolutely. But, that is clearly not a "doubling of milk prices in the supermarket " (and I'm not factoring in the butter and ice cream that is being skimmed out of that gallon). We can also be sure that not all of that additional $20 will be passed to consumers, at least in terms of their milk costs. The dairy case is the most profitable section of the store, so the products that dairy farmers are currently subsidizing will have to rise in price since stores can't charge $5.75 for milk. NMPF could use current and historic milk prices as an exhibit of what has happened to dairy farmers. We used to get 50% of the consumer $ (late 70s, early 80s). Now we get a quarter or so - that suggests a failure on the part of those marketing our milk (i.e. the co-ops making up NMPF) and they would prefer not to discuss that problem. Instead, their focus their efforts on making sire there is a cheap labor supply to undercut family (owned and OPERATED) farms.

Loren Lopes    
Turlock California  |  June, 26, 2013 at 08:44 AM

Chris Galen is blowing smoke screen for a bad plan. Even if parity kicked in under permanent law it would be unlikely to see $38 to $42 per hundred weight milk prices. The parity index was adjusted more than once under the 1949 law to make sure dairy farmers didn't get over paid and that consumers didn't get gored. Parity would at a fair level stop the attrition and bring stability to the entire dairy industry. The 49 law could work today with a few minor adjustments cap the parity index at average cost of production , Limit government purchases to stay within the budget , provide for nutrition programs with excess production. This would result in a milk price of $20.00 to $22.00 per hundred for manufactured milk plus the class 1 differential price. Attrition should be the priority concern for the Dairy industry not Parity!!!.

new york  |  June, 26, 2013 at 10:49 AM

Loren, I brought up attrition to my ccop president and his reply was as long as we continue to have the same volume he was not worried! With leadership like this it is no wonder farms continue to fail.

Loren Lopes    
California  |  June, 26, 2013 at 01:18 PM

Hi Steve, California dairy producers were told if we cut production the price of milk would go up because California has produced 20% to 25% of the U.S. volume . As you probably know California has cut back production through Co-op and private plants imposing supply management through production bases together with attrition because of prices below the cost of production. And guess what , milk prices have not caught up with costs. This is all Milk Manager B.S. degree talking down to the Producer. We have had Co=op presidents go out of business talking the same philosophy because they were relying on there meeting pay to cover their losses.

Wakefeild PA  |  June, 30, 2013 at 11:31 AM

It is my opinion that if rBST was taken off the market the dairy industry would be better off. When CWT was paying farmers to send cows to slaughter I think they should have Paid farmers not to use rBST. I live in a very dairy dense area. Every other day I see 3 milk trucks from the same hauling Co. Hauling for the same Coop. Making pickups in an around my place. One hauling rBST milk, one hauling rBST free milk and the other hauling a mixed load. If all the farms were not using rBST one truck would full fast in a short haul! Hence fuel savings! If all farms were not using rBST the bottlers/processors could not use it as a bargaining chip! If all farms were not using rBST the consumer would have more confidence in the products they buy.

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