Dairy experts skeptical of price increase
December 29, 2012
Despite warnings, local agriculture experts and dairymen don't believe milk prices will hit $6 to $7 at the grocery store next year if a new farm bill doesn't pass.
Some experts have told a number of media outlets recently that if the lame duck Congress fails to pass a new farm bill or extend the old one, a 1949 law would take effect in January that would almost double the price of milk for consumers.
Those skyrocketing prices wouldn't be good for dairy farmers. While it might give them a short-term boost to profits, they fear that consumers would cut back on dairy or opt for imported dairy products, according to Weld County dairymen.
It could also force food-makers to search for alternatives to dairy, like soy.
But Colorado State University dairy specialist Bill Wailes said he doesn't expect the 1949 rule to have any impact, regardless of Congressional action.
Referring to a recent article in the Daily Dairy Report, Wailes explained that government price-support programs are voluntary, and are only used by a certain percentage of the industry.
Even when dairy-product prices drop, manufacturers are hesitant to sell product into government support programs — due the costs of USDA packaging requirements, risk of USDA graders rejecting product and delayed payments — and instead unload surplus product at lower-than-support prices to clear the market. Even with an increase in government-support prices, experts believe most manufacturers wouldn't use the program.
Furthermore, Wailes said Secretary of Agriculture Tom Vilsack has the authority to step in and do what's needed to maintain an "orderly" market if a new farm bill isn't passed.
Agriculture economists with the Livestock Marketing Information Center in Denver, officials with Leprino Foods, which has a cheese-processing facility in Greeley, and local dairy producers also aren't too concerned that the 1949 law will be put in place.
"I just don't see it happening," said Terry Dye, a Weld County dairyman.
The federal government agrees to buy milk and other products if the price gets too low.
The most recent farm bill has a formula that means the government steps in if the price of milk were to drop by roughly half from its current national average of about $3.65 a gallon.
However, that bill expired Sept. 30, and Congress has been unable to agree on a new one.
The law states that if a new bill isn't passed or the current one extended, the formula for calculating the price the government pays for dairy products reverts back to a 1949 statute on Jan. 1. If the old mechanism were applied to current market conditions, the government price could be double the current rate, industry officials say.
Farmers would sell their dairy products to the government instead of the private market and store prices would surge, they say, and then prices might collapse as the government eventually sold its dairy stockpiles.
The problem is serious enough that industry officials are considering fallback options.
The likeliest would have Congress passing an extension of current farm law, which would provide a temporary fix.
"You just have to think they'll find someway of preventing that from happening," said Gege Ellzey, an Eaton-area dairy farmer.