USDA back in the dairy business

After several years of inactivity, the USDA is back in the dairy business by virtue of the price support program. Actually, it is a USDA agency, the Commodity Credit Corporation, that makes the purchases to reduce the amount of dairy products in the marketplace.

While the price support level now is $9.90 per hundredweight of milk, that price level is achieved by the CCC purchasing dairy products at a price that supports the $9.90 figure. Under current law, the specific purchase prices are 80 cents a pound for nonfat dry milk, $1.05 for butter, and $1.13 for block cheese.

Because dairy product manufacturers have some extra costs involved with selling to the CCC (such as packaging specifications and certain grading standards) they usually are not willing to sell until the market price is below support levels. That's why the cash cheese price can drop below suppor level, as it did this winter.

Once in government storage, the products are sold by the CCC to other government agencies or foreign countries, donated to relief agencies, or sold back to the open market. The products cannot be sold back to the open market at less than 110 percent of the support price. However, the government attempted to use brokers to sells CCC holdings at less than 10 percent over support price a couple of months ago. The National Milk Producers Federation objected to that strategy, and the practice was stopped.

Unfortunately, having dairy products in CCC inventory acts as a ceiling on wholesale dairy product prices which set the price of milk. For example, any time the market price of nonfat dry milk gets above 88 cents a pound, the government can sell product and, essentially, keep the price from rising as high as fast as it might otherwise.

In 1983, the CCC purchased 18.8 billion pounds of milk in the form of nonfat dry milk, cheese, and butter. That was 14 percent of all milk produced by farms. Since October 1, the CCC has purchased 175 million pounds of nonfat dry milk and 4.5 million pounds of butter.