Milk-Price Doubling Delayed Even as Congress Fails to Act

December 13, 2013 06:00 AM

Although Congress is poised to go home for the holidays without passing a new farm law, milk prices will not double on Jan. 1.

Congress is poised to go home for the holidays without passing a new farm law, which should mean milk prices will double on Jan. 1. That isn’t going to happen.

The lapse in legislation means the nation will revert to a 1949 dairy program, though Agriculture Secretary Tom Vilsack said it will take at least a month for his agency to put the rules in place.

"It is unlikely, given the complexity of what will be required to implement the law, that we would have that in place through the month of January," Vilsack told reporters in a conference call yesterday.

That delay makes unnecessary a short-term revival of the most recent law, which passed in 2008 and lapsed Sept. 30, and should give congressional negotiators time to complete a new bill, he said. Lawmakers have so far have been unable to resolve differences over cuts to food stamps, changes to crop insurance and other farm aid in Senate and House versions of the USDA reauthorization.

A measure to extend the 2008 law, including the current dairy program, until Jan. 31 proposed by House Agriculture Committee Chairman Frank Lucas was passed by the chamber on a voice vote today. Senators have already rejected the idea, saying they’d rather focus on passing a complete, five-year farm bill early next year.

Farm-bill negotiators from both chambers have said they’re confident they’ll have an agreement that can pass Congress in January, before any disruption of dairy markets is likely to take effect.

Stockpiling Milk

Under the 1949 farm law, the government would be required to stockpile milk until it reached $37.20 per hundred pounds, almost double the current price of dairy futures traded in Chicago. The market isn’t taking seriously the threat of a doubling of milk prices, said Bill Brooks, a dairy economist at INTL FCStone Inc. in Kansas City, Missouri.

"It’s very, very, very slim possibility that we’ll see any kind of increase based upon federal legislation," Brooks, who grew up on a Missouri dairy farm and has covered the industry for about two decades, said in a telephone interview. "It’s on people’s radar screens, but not from the standpoint that it’s really going to impact markets any."

Dairy prices have risen this year, with milk futures traded on the Chicago Mercantile Exchange heading for a second straight quarterly gain, while nonfat-dry milk rose to a six-year high on surging overseas demand. Milk futures for December delivery fell 0.3 percent to close at $19.03 per 100 pounds yesterday.

Farm Subsidies

The pending legislation governs farm subsidies, encouraging the planting of soybeans, cotton and other crops that lower materials costs for commodity processors including Bunge Ltd., subsidizes crop-insurers such as Ace Ltd. and funds food-stamp purchases at Kroger Co. and other grocers.

Lawmakers have long agreed that any new agriculture bill will end a politically unpopular, $5 billion-a-year initiative that pays crop farmers regardless of economic conditions and replace it with an insurance-based program.

On food stamps, lawmakers have struggled to resolve differences between a Senate cut of about $400 million annually to the Supplemental Nutrition Assistance Program by limiting a program that expands benefits for recipients of a federal heating subsidy, and a House plan with a stricter limit to "heat and eat" and tighter eligibility restrictions that would save about 10 times as much money.

Food Stamps

Lawmakers have resolved many food-stamp-related issues, though still need to agree on work requirements and other elements that were part of a bill the House approved in September, said Representative Collin Peterson of Minnesota, the top Democrat on the House Agriculture Committee.

"There are still things that need to be discussed, some that deal with money and some that don’t," Peterson said.

Disputes over the commodity-subsidy portion of the bill have focused on the formula used to calculate acreage eligible for payments. Recent agriculture laws have given farmers options developed on the acres farmers plant as well as so-called base acres, which are derived from historical cropping practices.

As U.S. crop acreage has shifted away from wheat and cotton and toward soybeans and corn in the past 20 years, base-acreage calculations have been seen as increasingly archaic, although some producers favor them for the greater subsidies they can offer in individual circumstances. At this point, resolving the formulas hinges on Congressional Budget Office estimates expected to be available over the next few days.

Crop Insurance

"If the CBO score proves out, we’ll probably end up with base acres," Peterson said.

Crop insurance, which gained prominence after last year’s drought prompted a record $17 billion in payouts from insurance companies, may include requirements that farmers follow conservation plans on their land to qualify for federal subsidies. So-called conservation compliance, supported in the Senate and not included in the House plan, may end up in the final bill, Peterson has said.

The final main point of contention has been efforts to update dairy policy by creating an insurance-based system for producers that replaces current subsidies.

"The irony is that the new farm bill is expected to contain the biggest dairy policy reform in a generation," said Chris Galen, spokesman for the Arlington, Virginia-based National Milk Producers Federation. Even with a potential windfall for milk producers under a price doubling, the industry opposes a reversion to 1949 law, he said.

That law would be bad for demand, he said: It "is not a sustainable policy, economically or politically."

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