This prepping and survival blog post asks the question: Is the so-called “dairy cliff” real? First, the bad news: Yes, the dairy cliff is real. Current agricultural laws affecting dairy farmers are set to expire today (31 Dec 2012). Without that set of laws, which modified and largely nullified a 1949 set of laws, the dairy industry will fall under the old laws. The long explanation is here (WSJ). In short: the U.S. Department of Agriculture will be required by law, as of 1 Jan 2013, to start buying up dairy products until the prices rise to an insanely-calculated value based on 1914 prices adjusted for inflation. Those prices at that time were particularly lucrative for farmers. But applied to today’s market, the prices are unrealistic. They would set the wholesale price of milk at about $3.26 per gallon ($39.08/cwt. per businessweek.com), which would result in a retail price of about twice that level: $7 to $8/gallon.
U.S. residents consume an average of 21 gallons of milk each per year, times 311 million persons, for 6.5 billion gallons a year. Current commodity market price per Index Mundi is around $18.60/cwt. To buy enough milk to raise the price to $39.08/cwt. would cost billions of dollars. What will the USDA do with the vast quantities of milk that they will be required to buy just to artificially raise the price? I have no idea. I don’t think they know either.
Now the good news: It looks like lawmakers have agreed on a compromise measure to avoid the dairy cliff. However, the deal must be passed by both houses and signed by President Obama by 1 Jan 2013. Time is running out on this one. If a deal is not reached, prices for milk might rise gradually, as the USDA buys milk on the commodity market in order to deliberately jack-up the price. (If a company or individual manipulated a commodity price in that way, would it even be legal?) On the other hand, commodity markets are subject to speculation and anticipation, so prices could jump suddenly.
UPDATE 2 Jan 2013: The Dairy Cliff problem was fixed as part of the Fiscal Cliff bill that President Obama has said he will sign. The fix simply extended the previous law by one year.
Would $7 to $8 per gallon be too high a price to pay for milk? I’m already paying $3.50 to $3.98 per half-gallon for my preferred organic 2% milk, which is about $7 to $8/gallon. But other dairy products are made from milk. The price of cheese could easily double (or more).
Well, I’m off to the supermarket right now, to buy a bunch of cheese for the freezer.