The Dairy Cliff: Milk Prices To Double in 2013 Thanks To Big Government Meddling

[TripleB]

The government has various subsidy and price fixing deals in place with farmers. Some of those deals expired recently and are not renewed. However because others are in place, it means the government will be forced to buy milk at 2x the current market price... AND people are clamoring for extensions of the old government rule to keep the price down.

Fascinatingly, no one is arguing that if Government didn't price-fix at all, the market would stabilize back to normal. Instead, they are fighting for more government plans to fix the old government plan.

CNN ARTICLE BELOW:


The New Year could push milk prices to $7 a gallon.

With Congress spending all its time trying to avert the fiscal cliff, a slew of other legislative matters are going unattended. One of them is the agriculture bill which, if not addressed, could lead to a doubling of the price of milk early next year.

It works like this: In order to keep dairy farmers in businesses, the government agrees to buy milk and other products if the price gets too low. The current agriculture 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.

Problem is, the current bill expired last summer, and Congress had been unable to agree on a new one. Several protections for farmers have already expired, and several more are set to do so over the next few months. One of them is the dairy subsidy, which expires January 1.

But instead of leaving farmers entirely out in the cold, 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. Under that formula, the government would be forced to buy milk at twice today's price -- driving up the cost for everyone.

"If you like anything made with milk, you're going to be impacted by the fact that there's no farm bill," U.S. Secretary of Agriculture Tom Vilsack told CNN's Candy Crowley in an interview on State of the Union airing Sunday, Dec. 30.

"Consumers are going to be a bit shocked when instead of seeing $3.60 a gallon for milk, they see $7 a gallon for milk. And that's going to ripple throughout all of the commodities if this thing goes on for an extended period of time," Vilsack said.

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Sky-high milk prices wouldn't necessarily be good for dairy farmers either, according to Chris Galen, a spokesman for the National Milk Producers Federation, which represents over 30,000 dairy farmers.

While it might provide a short term boost to profits, there's a fear that consumers would either cut back on dairy or opt for imported dairy products. It could also force food makers to search for alternatives to dairy, like soy.

"We call it the dairy cliff," Galen said.

Fortunately, there's still time for Congress to act.

Galen said the government would have to issue a notice saying it was going to pay the increased price for dairy products, then set up a schedule for when purchases would start, a process that could take a few weeks.

"It's not like people would dump blocks of cheese on the USDA's front lawn January first," he said.

To prevent the price spike, Congress either needs to extend the current bill, pass a new bill, or enact some provision to keep the 1949 law from taking effect.

Given the current state of the fiscal cliff talks and Congress' inability to get things done in general, dairy lovers might want to stock up now.

[RuralEngineer]

I guess it's time to start eating my cereal with water and stocking up on calcium pills.

[MachineGhost]

I guess it's time to start eating my cereal with water and stocking up on calcium pills.

Already there.

[Pointedstick]

This is so idiotic. Why don't they just repeal the law that prevents the government from buying milk at market prices? This is a great example of why government fails at so many things: first it makes a bad law, then it patches that bad law over and over again with another law, rather than just friggin' repealing the original bad law! Instead they endlessly debate over the correct way to patch the original bad law while tacking all sorts of stuff onto the patch that makes it controversial.

Just buy the darn milk at market prices!

[TripleB]

This is so idiotic. Why don't they just repeal the law that prevents the government from buying milk at market prices? This is a great example of why government fails at so many things: first it makes a bad law, then it patches that bad law over and over again with another law, rather than just friggin' repealing the original bad law! Instead they endlessly debate over the correct way to patch the original bad law while tacking all sorts of stuff onto the patch that makes it controversial.

Just buy the darn milk at market prices!

But that wouldn't be fair to Dairy farmers. If the milk price is allowed to fluctuate they will go out of business because they can't guarantee enough money to pay the mortgage on their farm (that is artificially inflated due to government subsidies).

Then there wouldn't be any milk for anyone!

[Kriegsspiel]

This is so idiotic. Why don't they just repeal the law that prevents the government from buying milk at market prices? This is a great example of why government fails at so many things: first it makes a bad law, then it patches that bad law over and over again with another law, rather than just friggin' repealing the original bad law! Instead they endlessly debate over the correct way to patch the original bad law while tacking all sorts of stuff onto the patch that makes it controversial.

Just buy the darn milk at market prices!

But that wouldn't be fair to Dairy farmers. If the milk price is allowed to fluctuate they will go out of business because they can't guarantee enough money to pay the mortgage on their farm (that is artificially inflated due to government subsidies).

Then there wouldn't be any milk for anyone!

I'm not sure if you are being sarcastic, but don't people already do that?  IE, don't commodity speculators offer to buy.... wheat, at $x a pound, which gives farmers a safety net in case prices plummet, and lets the speculator reap the gains (grains?) if it goes up?

[Pointedstick]

He is being sarcastic, and yes, you're absolutely right. This kind of old-fashioned top-down price floor is terribly obsolete and has no place in a dynamic modern economy, IMHO.

[TripleB]

But that wouldn't be fair to Dairy farmers. If the milk price is allowed to fluctuate they will go out of business because they can't guarantee enough money to pay the mortgage on their farm (that is artificially inflated due to government subsidies).

Then there wouldn't be any milk for anyone!

I'm not sure if you are being sarcastic, but don't people already do that?  IE, don't commodity speculators offer to buy.... wheat, at $x a pound, which gives farmers a safety net in case prices plummet, and lets the speculator reap the gains (grains?) if it goes up?

Actually, we passed recent regulation to limit commodity speculators because they were causing prices to unfairly rise.

And yes, I was being sarcastic. The reality is I feel like I'm living in a Bizarro Inverse Reality where politicians do the exact 180 degree opposite of what needs to be done, blame the other guy when the inevitable happens, and then continue to do the exact 180 degree opposite of feasible economic policy.

[Pointedstick]

The reality is I feel like I'm living in a Bizarro Inverse Reality where politicians do the exact 180 degree opposite of what needs to be done, blame the other guy when the inevitable happens, and then continue to do the exact 180 degree opposite of feasible economic policy.

Welcome to human history! I console myself that at least these days when they do it, fewer people die as direct results. There are of course some sad exceptions like the Iraq War, but on the whole, I think American politicians do a lot less overt physical damage than the crumbling institutions of Old Europe, or the dictatorships of Africa and the Middle East, or the Marxist states of Central and South America.

[Benko]

Pointedstick,

I suppose in some ways you are right, though it is sad that the unemployment rate and economic conditions in this country ("the new normal" ?) result in so much suffering in the very economically less well off people that liberal policies are supposed to be designed to help.