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MILC Money

House Republicans are supporting a dairy subsidy which is bad economics and bad politics.

12:00 PM, Dec 13, 2005 • By DAVE JUDAY
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The USDA report explains the rather arcane interaction: "the price support program establishes a safety net floor under milk prices--milk prices are allowed to fall enough to induce a correction (in the market)" while producer incomes are protected by the price support level. But, the report goes on to say, "when market price has fallen toward the price support safety net and thus is calling for an adjustment in supply, the results are partially muted by the MILC program." Since MILC payments are tied to production, those payments actually stimulate increases in marginal production, and that added production puts even greater bearish pressure on milk prices. A vicious cycle, indeed.

Let's review. The MILC program is counter productive, has a history of cost overruns, and was never meant to be more than a temporary fix. And as a political tool, it has a similarly dismal record. It would be much better for Speaker Hastert and all concerned to have within the next few weeks, a real deficit reduction plan, with real savings, wrapped up and placed under the Capitol Christmas Tree.

Dave Juday is an agricultural commodity market analyst.