The Farm Bill and The Milk Cliff

A 60-Year-Old Piece of Legislation Could Double Your Grocery Bill

Written by Jason Simpkins
Posted December 4, 2013

If we could very nearly fall off the fiscal cliff, what's to stop us from going over the "milk cliff?"

What's that?

You've never heard of the milk cliff?

Well, listen up, because as it approaches, there's an increasing probability that the U.S. government will get stuck with warehouses full of overpriced dairy, and consumers' grocery bills will double.

Back to the Future

The most recent farm bill extension expired on Sept. 30.

So far, that hasn't been a problem. Nutrition programs continue and crop insurance never expires. However, things could take an ugly turn come Jan. 1, which is when we run up against the milk cliff, also called the "dairy cliff."

You see, if the farm bill isn't renewed by then, the nation's farm policy will revert back to permanent law. In this case, that would be the 1949 farm bill.

Problem is, milk and dairy cost way more to produce 60 years ago, so the support price set in that farm bill was much higher then than it is today.

Double, in fact.

Indeed, if a new farm bill isn't passed by Jan. 1, the government will have to buy up enough milk to drive the price from its current level of $19.50 per 100 pounds of milk to the 1949 parity price of $39.53. The same goes for butter and cheese.

The higher prices would then trickle down to the consumer, and the amount paid for milk, cheese, and other dairy products would skyrocket.

Milk, now at $3.85 per gallon, could soar to $8.00.

Milk Cliff-Hanger

So how likely is this to happen?

 

It's unlikely, but still very possible, considering this Congressional antagonism seems to be running at an all-time high. Furthermore, lobbying groups representing a wide swath of agricultural interests have dug in for a nasty fight.

Groups representing staples like corn, rice, soybeans, and sugar have fragmented in support of either House Agriculture Committee Chairman Frank Lucas (R-OK) or Senate Agricultural Committee Chairwoman Debbie Stabenow (D-MI).

The end result has been gridlock, with competing House and Senate proposals tens of billions of dollars apart.

The Senate proposes slashing about $4 billion in SNAP funding over the next decade, while the House would cut nearly $40 billion.

The two sides have the rest of December to reconcile the difference, or at least pass a stopgap measure.

If they don't, over the milk cliff we go.

If you're looking for profit it'll be difficult, but not impossible.

There aren't many publicly-traded companies that traffic exclusively in milk. However, Dean Foods (NYSE: DF) and Synutra International (NASDAQ: SYUT) both have some exposure.

They'd certainly enjoy a short-term lift, if the milk cliff becomes a reality.

Get paid,

Jason Simpkins 

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