Milk Cliff? Ain’t gonna happen.

December 10, 2013 08:57 AM
 

Cornell dairy economist Andy Novakovic says the likelihood of dairy price supports and retail milk prices doubling January 1 is so remote that it’s hardly worth talking about. But the national media, being the national media, is once again hyping the possibility.

It is true that if a farm bill is not passed or renewed by January 1, permanent farm law requires that the Secretary of Agriculture set the dairy price support level at 75% to 90% of parity. The November parity price for milk was $49.60, meaning the support price (if parity held at that level in December) would be $37.20.

But a whole lot of steps would have to happen before farmgate prices ever reach that level, says Novakovic. "Until USDA announces the purchase prices for dairy commodities and releases the formal invitations for offers at those purchase prices, nothing happens to markets, other than perhaps rampant speculation," he says. It’s conceivable the Secretary could solicit comments from industry on how to implement the required support prices, he adds, which could add months to the process.

Even if USDA issues invitations for offers, it would be for very specifically defined products and packaging that meet long-term storage requirements. "If no manufacturer cares to sell to USDA, then there is no sale and no corresponding price effect," says the economist. "[Manufacturers] would likely think twice before shorting existing customers for the short-term high of selling to USDA in a program that no sane person could expect to continue for long."

And if there were, "there would be near obliteration of product sales if in fact market prices were raised to supported levels," he says. "It is safe to say that Fonterra (New Zealand’s large dairy cooperative) and every dairy buffalo owner in India would be tempted to export to the United States…."

 

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