The specter of milk jumping to $7 a gallon as U.S. farm programs
expire probably will be held off because regulators will need time
to write new pricing rules, even if Congress fails to avert a so-
called dairy cliff.
House and Senate agriculture committee chiefs Sunday backed a one- year extension of the 2008 farm bill, trying to stave off higher prices that emerge when expired rules force the U.S. Department of Agriculture to revert to policies set in 1949. Neither chamber has voted on the plan, or on narrower alternatives, with both houses set to resume work today. Still, should Congress fail to deal with milk costs that may double without action, price increases may be slowed while the USDA seeks to turn back time, analyst Dave Kurzawski said.
"Everyone won't start selling their butter and cheese to the U.S. government on Jan. 2," Kurzawski, a consultant at INTL FCStone Inc. in Chicago, said in an interview. "We are going to need to find a resolution to this, though."
The most recent farm law, passed in 2008, expired Sept. 30. Without a replacement, agricultural programs return to earlier rules that are the basis of all subsequent legislation. The effects of that transition have been delayed because of the growing seasons of different crops. Dairy, a year-round business, is the first major commodity affected. In November, the USDA estimated the price of a gallon of fresh whole milk at just under $3.54.
The draft bill agreed upon by the farm-panel leaders would extend the expired farm law through Sept. 30, provide disaster aid for producers affected by this year's drought, and make changes to milk policy. The new dairy program would manage supply partly by setting production limits for farmers who enroll in a market-stabilization program.
House Speaker John Boehner, an Ohio Republican, has opposed that concept, calling it worse than current policies that he termed "Soviet-style." The proposal wasn't on a list of measures released last night to be considered by the House during today's session.
President Harry S. Truman's farm policy from 1949 required the government to buy supplies of a product until its price approached "parity" with the cost immediately before World War I. Adjusted for a century of inflation, the USDA milk-support price today would be $39 per hundred pounds, more than double the dairy futures price in Chicago today.
This price-support policy, which once brought rivers of dumped milk and free cheese for the poor, was gradually abandoned as U.S. agriculture law became more market oriented.
Massive government purchases "would dramatically increase government spending, would force consumers to pay significantly more for dairy products, and would impose long-term damage to the dairy industry," the International Dairy Foods Association wrote.
The group urged the USDA to "proceed in a thoughtful and deliberate manner" in any move to implement the 1949 law. It said it opposes the dairy plan included in the proposed farm-bill extension for potentially limiting the supply of milk by encouraging farmers to cap production.
"It is ironic that the threat of higher dairy prices for consumers, caused by the possible implementation of the 1949 Act, is being used to force Congress to pass a new program that will result in higher prices," Jerry Slominski, the group's senior vice- president for legislative and economic affairs, said in a statement.
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