Is Eastern Iowa ready for $8 milk?

Dairy prices could double if farm bill, ‘fiscal cliff’ issues aren’t resolved

Steve Gravelle
Published: December 29 2012 | 5:30 am - Updated: 1 April 2014 | 3:51 am in

From his Jackson County farm, Joe Heinrich will keep an eye on Washington, D.C., this weekend.

Heinrich is paying close attention to a corner of the so-called “fiscal cliff” debate in Congress and the White House. Thanks to Congress’ failure to adopt a new farm bill, policies take effect at midnight Monday that would push milk prices to $6 or $8 a gallon.

“It seems a little surreal that they would even let it happen,” Heinrich said after morning chores one day this week.

Higher prices would bring a windfall to farmers like Heinrich, 51, who with his wife Shirley and a nephew milk about 60 cows on their farm near Maquoketa. But it’s one he’d as soon do without.

“It sounds good initially, but when you think about it, it’s not good for the consumer long-term,” he said. “It doesn’t take very long to realize we need a balance” between producer and consumer needs.

“Dairy prices are already astronomical,” said Nick Carfrae, manager of Tomaso’s Pizza, 3234 Center Point Rd. NE. “That’s been an ongoing thing over the past six months. A month ago I was paying the highest price for cheese I’ve ever paid.”

Back to 1949

Barring congressional action, federal dairy policy reverts Tuesday to a 1949 plan under which the Department of Agriculture buys milk at $40 per hundredweight, more than twice the current price. There are about 12 gallons of milk in a hundredweight, depending on its fat content.

Cheese makers and other processors would be forced to outbid the government, doubling the retail price of milk and dairy products.

Farmers, processors and retailers don’t expect an immediate jump in prices, but all want a new farm bill to prevent the 1949 policy taking effect.

“I would not stock up on milk as the New Year’s clock nears midnight, as this will take some time to sort itself out,” Chris Hoeger, vice president of procurement for Swiss Valley Farms in Davenport, wrote in an email.

“Milk prices for January have been already established and sent to the retailers this past week, so milk prices should remain near the current levels for the month of January,” Hoeger wrote.

It would take about a month for the government to establish policies for milk purchases at the higher price, according to Hoeger.

“The bigger question will be, where will the government get the funds to buy the dairy products with all the other fiscal cliff issues?” Hoeger wrote.

Even a temporary uptick in dairy prices would hurt dairy exports, which account for about 14 percent of the nation’s production. Hoeger noted imported dairy products would even undercut domestic products.

“We would lose all that we have gained in the past few years as an exporter of dairy products,” he wrote.

‘Poison pill’ provision

The 1949 provision was left in the current farm bill as a “poison pill” to force Congress to adopt a new farm bill. In June, the Senate passed a farm bill that cuts spending over the previous version by about $24 billion over 10 years. The House Agriculture Committee passed a bill in July with $35 billion in cuts.

Both versions reduce direct payments, the $5 billion subsidy paid by the government every year to farmers. Farm groups supported those cuts only if they included subsidized insurance to cover financial losses when crops are lost to flood or drought.

Negotiations on reconciling the two versions are stalled, and House Speaker John Boehner has resisted U.S. Agriculture Secretary (and former Iowa governor) Tom Vilsack’s calls to include a new farm bill in budget legislation to avoid the fiscal cliff.

“There’s no reason why we can’t get it done,” Vilsack told the U.S. Chamber of Commerce last week. “I think right now the Speaker’s reluctance needs to be addressed. Then we need to tell the Speaker it’s not a thousand-page bill, it’s a bill that can be easily linked to and provide savings for any fiscal cliff resolution and would encourage the Speaker to rethink the notion that this can’t be done. It can be done.”

Congressional response

“The looming spike in milk prices is a direct result of congressional leaders refusing to do their job to pass a farm bill,” said 1st District Rep. Bruce Braley, D-Iowa, who sponsored a failed resolution in August to force the House bill out of committee. “It’s beyond frustrating to watch Congressional leaders feud over the so-called fiscal cliff and refuse to work on anything at all while there are so many big issues like the Farm Bill that need to be dealt with.”

Republican Sen. Chuck Grassley expressed similar concerns.

“Many of us have been warning the House leadership about the consequences of not passing a farm bill,” Grassley said. “High milk prices are just one of the first problems we may see. Modern agriculture simply doesn’t fit in a 1949 law.”

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