The government announced a three-month increase in U.S. dairy support prices on Friday that would put an additional $243 million into farmers' pockets and offset the lowest milk prices in 30 years.
Burdened by economic recession and an abrupt slump in exports, dairy prices collapsed last fall. They are two-thirds of last year's level and below operating costs for many farmers.
The price increase announced today will provide immediate relief to dairy farmers around the country and keep many on the farm while they weather one of the worst dairy crises in decades, said Agriculture Secretary Tom Vilsack.
For August through October, the Agriculture Department said it will pay 15 percent more for nonfat dry milk and 16 percent more for cheddar cheese in blocks or barrels. The dairy support price puts a floor on milk prices, so higher support prices will bring an estimated $243 million increase in farm revenue.
USDA's action sent milk prices almost 5 percent higher on Friday and cheese prices 5 to 6 percent higher at the Chicago Mercantile Exchange, where dairy prices are set for much of the nation.
Farm groups and lawmakers applauded the increase but said it was a stop-gap move. Connecticut Rep. Joe Courtney, co-chairman of the Congressional Dairy Farmers Caucus, said there is a systemic issue that we have to examine seriously, meaning a milk surplus.
Several caucus members called for more federal action in the short term, including higher payment rates in the Milk Income Loss Contract subsidy.
It still comes down to a supply-demand issue. We have a lot of supply, demand has decreased, exports are down, and we have mild temperatures here so cows are happy, at least in the Midwest, producing a lot of milk, said David Zaslavsky, a Chicago analyst with Downes-O'Neill.
Nick Kelne, an independent milk trader, said he didn't think increasing dairy support prices would do an awful lot to lift milk prices.
Milk is forecast to sell for an average $12 per 100 lbs at the farm gate this year. Prices are expected to rebound to $15.15 in 2010 due to improving economy and smaller milk output.
Under the temporary increase, USDA will pay 92 cents per lb for nonfat dry milk, $1.31 per lb for block cheddar cheese and $1.28 per lb for cheddar cheese in barrels. Ordinarily, the support price is 80 cents per lb for dry milk, $1.13 per lb for block cheddar cheese and $1.10 for cheddar in barrels.
USDA estimated it would buy an additional 150 million lbs of nonfat dry milk and an additional 75 million lbs of cheese.
The National Milk Producers Federation (NMPF) has backed a three-month increase, and the new levels were higher than even the trade group requested last month.
This step by USDA to raise farm-level milk prices comes at a critical time, and is yet another important effort the agency has made to help dairy farmers survive the worst recession in their lifetimes, said Jerry Kozak, president of NMPF.
Earlier this year, USDA donated 200 million lbs of surplus nonfat dry milk to public feeding programs and offered to subsidize more than 92,000 tonnes of dairy exports.
It was the first time in five years the USDA paid dairy export subsidies. The United States said it was forced to respond to new European subsidies that made it hard to compete in global markets depressed by the economic downturn.
(Additional reporting by Jerry Bieszk and Bob Burgdorfer in Chicago; Editing by Lisa Shumaker)
(Reporting by Christopher Doering)