Ever since late December 2012, different members of Congress and now some leaders of farm organizations are predicting that milk prices may escalate to $8 per gallon if a new Farm Bill is not passed by Jan. 1, 2014. It is simply reckless for anyone to continue to throw these figures around.
However, it is almost certain that Congress will intercede before Jan. 1. But then again when you watch the current activities (or lack thereof) of Congress, who knows what might happen? But lets just suppose the 1949 Dairy Act does kick in on Jan. 1.
Under the 1949 act, the secretary of agriculture would be mandated to establish the parity price on manufactured dairy products at between 75 percent and 100 percent of parity.
The products the Commodity Credit Corporation would purchase would be some cheese, butter and powdered milk. These prices would reflect the percentage of parity the secretary of the U.S. Department of Agriculture would set, plus these prices would be high enough to cover the make allowances to cover the manufacturers cost of converting milk into the products. (Have you ever heard of the make allowance?)
Around Jan. 1, 2013, 100 percent of parity was approximately $51.70 per cwt. The secretary in all probability would set the parity price at 75 percent, which would be $38.78 per cwt. No one knows what the market price of these dairy products would climb to. But lets assume (and only assume) that market prices go to 75 percent of parity. What does this mean to bottled milk, etc.? The $38.78 would, in all probability, be the mover for bottled milk.
In the Northeast, the Class I differential of $3.25 per cwt. would be added to $38.78 per cwt., or a Class I price of $42.03. What would this mean to a gallon of milk in a store? In Central New York, it appears the average selling price of a gallon of milk is $3.60. There is 11.6 gallons of milk in 100 pounds of milk. For every $1 per cwt. movement in the Class I price (bottled milk) a gallon of milk sold in a store is affected 8.6 cents.
The current Class I prices in the Northeast is approximately $23 per cwt. If and only if the 1949 Act was enacted, then the Class I price could go to $42.03. This means the present Class I price of $23 per cwt. is $19 lower than the $42.03 price.
When you multiply the $19 figure times the 8.6 cents per gallon figure, you should get an increase of $1.63 per gallon; $1.63 per gallon added to the current figure of $3.60 per gallon comes to $5.23 per gallon, not $8! Many stores are selling imitation milk as high as $6 per gallon. Websters dictionary says milk comes from mammals.
The irony of all this means none of us should be writing about this nonsense and again its only a scare tactic in an attempt to have Congress pass a new Farm Bill. Unfortunately, the dairy portion of the proposed farm bill is not intended to raise the prices to the struggling dairy farmers across the United States.
The United States Congress has let the American dairy farmer down by not giving just consideration to the Casey bill, which would have given dairy farmers a fair chance to survive.
By using the same calculation as before, the prices to consumers would have been approximately $4.15 per gallon, a far cry from figures now being thrown out. I would advise Congress to revisit the Casey bill (the federal Milk Marketing Improvement Act) and give the bill a chance.