Support price rise a detriment?

USDA’s announcement of a temporary increase in the price support program may increase farmers milk checks in the near future, but also raises several questions.

“It’s not going to provide the immediate price relief that USDA promises, just because of the way the lags are in the pricing system,” Alan Levitt, editor of the CME’s Daily Dairy Report, told DairyLine Radio this week.  The August Class I price is already set, but there will be some impact on the August Class III and IV prices.  He estimates the all-milk price may add 50¢ to farmer’s milk checks, bringing some relief by September.

USDA expects to buy 75 million lbs. of cheese, but the spot price has already increased to just under that support level, “So I don’t think we’re really going to see any sales of cheese to the government,” he said.

As for nonfat dry milk powder, USDA said they expect to buy 150 million lbs. in just three months. “That would be huge,” Levitt said. “That’s probably half the powder we would produce in that time period.”

But, he added increasing the support price makes U.S. exports even less competitive than they were before. “It’s going to be interesting to see whether USDA is going to give bigger DEIP bonuses, or if they’re just going to buy a bunch more powder and put it away, and then we’re going to have to figure out how to get rid of that powder later.”

“My guess is the bonuses are not going to increase enough, and that’s kind of unfortunate, because sales to CCC had almost stopped, and now they’ll probably have to pick up again,” he said.

Levitt said the timing isn’t very good because the weak dollar has given the U.S. a little bit of advantage against Europe and Oceana, which is in its off season. “We really had a chance to move a little powder over the next few months, but now we don’t know if that’s going to happen.”

He said the bottom line is it throws more uncertainty into the dairy markets when there was already a lot of uncertainty. Some will be second guessing USDA’s decision, and many questions remain.

“Is the support price increase going to be extended after October?  What signals is it going to send to the farm? Is it going to make farmers hang on longer? What’s going to happen to all that powder in storage?” he asked.

“I recognize that it’s going to improve milk prices in the short term, but in the long term, at some point we have to get rid of these stocks and I don’t know if this move is going to help us do that,” Levitt concluded.