Lawmakers appear far from reaching agreement on a new farm bill, but farmers and consumers needn’t fear the possibility of $10-a-gallon milk next year. That prospect will almost certainly ensure that Congress passes some kind of extension of the 2018 farm bill by early 2024.
The looming expiration of the 2018 farm bill will bring back the threat of the “dairy cliff,” the triggering of laws dating back to 1938 and 1949 that would force USDA to take steps to dramatically raise the price of milk, wheat and other commodities. Collectively, the 1938 and 1949 provisions are known as “permanent law” and have been left on the books precisely to ensure Congress either passes a new farm bill or extends the expiring legislation.
USDA would be required under permanent law to start buying up enough milk, butter and other products to maintain dairy prices at 75% to 90% of the “parity price,” a level in line with where milk prices happened to be in 1910-1914.
For dairy, the parity price is $67.70 per hundredweight; 75% of that would be $50.70.. By comparison, the average farm price was $19.30 in January.
Economists at the University of Minnesota tell Agri-Pulse USDA might have to purchase as much as 15% to 25% of U.S. dairy products to push the farm price of milk to $50.70. That, in turn, would cause the retail price of milk to more than double. The average retail price of whole milk in July was $4.34 a gallon, and prices in some cities were as high as $5 and $6 a gallon, according to USDA.
CRS estimates that USDA purchases would cost the federal government as much as $15 billion to $19 billion a year.
While none of that is going to happen, it does raise the question of how long Congress has before it must pass an extension of the 2018 farm bill. Senate GOP Whip John Thune, R-S.D. said last week that leaders of the Senate are not close to moving a bill.
Technically, permanent law for dairy would trigger as soon as Jan. 1, but USDA officials couldn’t act immediately to implement permanent law, even if they wanted to, because the department would have to first write regulations to carry it out.
USDA would have still more time to address commodities such as wheat and corn, which would have parity prices of $20.40 and $15.30 per bushel respectively, because the existing programs for those and other row crops continue in effect for the commodities' marketing year, according to CRS. The marketing year for wheat runs through May 31. For corn, the marketing year ends Aug. 31.
Implementing permanent law for row crops could potentially be even more complicated and time-consuming than manipulating milk prices, because for some commodities USDA would be required to set marketing quotas and acreage allotments and hold farmer referendums.
Former House Agriculture Committee Chairman Collin Peterson, D-Minn., thinks Congress will have to pass an extension of the 2018 farm bill in December or early 2024. But how long that extension will be depends on whether leaders of the House and Senate Agriculture committees are making any progress in resolving major sticking points, including whether and by how much to raise Price Loss Coverage reference prices, he said.
But if negotiations are making progress in December, and there’s a pathway to final agreement, a short-term extension into early 2024 would be enough, Peterson told Agri-Pulse.
On the other hand, “if they're still sitting in the same position that they are today, where they want more money for this and that — but there's no more money that's been determined — at that point, I'm not sure a short-term extension does a whole lot of good,” Peterson said.
In that case, Peterson believes the 2018 farm bill could be extended all the way to December 2024 to get past the election.