Higher Milk Prices: Farm Bill Wake-Up Call?

Photograph by Ty Wright/Bloomberg

Wholesale milk prices may double if a Farm Bill is not passed soon.

One of the big questionmarks for the rest of the lame-duck session is what will become of the farm bill. As lawmakers were leaving last week for their break, House Majority Leader Eric Cantor said only that he wanted Congress to address what he called the “farm issue” before adjournment.

Whatever the leaders come up with, the math could be tricky, since several retiring House members have said they may not be back for the final votes.

If Congress doesn’t extend the U.S. dairy support program, which is one of the programs covered in the larger farm-policy law, it will revert to the way it was in 1949, roughly doubling wholesale milk prices.

“Fiscal-cliff tax increases would hit middle-class families’ pocketbooks, but so would paying six or seven dollars for a gallon of milk,” said Senate Agriculture Committee Chairwoman Debbie Stabenow, a Michigan Democrat.

The average retail cost of a gallon of whole milk was $3.54 per gallon in November, according to Agriculture Department data compiled by Bloomberg. The base price of Class  III milk, from which all dairy prices are calculated, was $20.83 per hundred pounds (hundredweight) in November.

Agriculture Secretary Tom Vilsack has said that it would “take a while” to implement changes if the U.S. reverts to the 1949 law. He hasn’t offered any more specifics, telling reporters in a conference call last week that “the best outcome would be for Congress to do its job.” While the USDA doesn’t currently purchase much dairy, it could be forced to stockpile butter, cheese and other products should wholesale prices revert to the levels set in the 1949 law.

Oklahoma Republican Frank Lucas and Minnesota Democrat Collin Peterson, the House Agriculture Committee’s chairman and ranking member, separately predicted that if Congress fails to act, the wholesale cost would rise to about $38 per hundredweight. A rise in milk prices could help generate support for congressional action, according to Peterson.

The committee plans to mark up a new bill on Feb. 27.  “Maybe the milk price will wake them up,” Peterson said, adding that the full impact of higher prices may not be seen at the grocery store until summer. “It’s not going to be a change on Jan. 2,” he said in an interview last week.  “How soon it goes up, nobody knows.”

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