Dairy Price 'Tilt' Thought Unlikely

June 6, 2002

The nonfat dry milk price has settled at support and government powder stocks continue to grow; but a tilt of the butter and powder support prices seems increasingly unlikely, due primarily to the risk of raising the butter support price high enough to meet the market price, according to the American Butter Institute.

Market butter prices have fallen so low that any more reductions in the USDA powder price could put the government back in the business of buying and storing butter - a business they were happy to get out of in the mid-1990s, said ABI. Reducing the powder price to 80 cents would set the butter floor at $1.05.

Buying butter would create a series of additional problems for USDA, ABI noted. The first purchases after five years might not go smoothly, and the department would take some heat if the butter price declined well below the support level.

Butter must be refrigerated, which means storage costs are significantly higher than they are for nonfat dry milk. "And to top it off," said ABI, "cold storage has been in short supply lately. USDA will think twice before it risks being saddled with a mountain of butter."

Even without a tilt, there is a possibility that butter could reach the support price (now at 85 cent) yet this year. Butter has settled as low as $1.025 on the Chicago Mercantile Exchange this spring, and continues to show weakness.

"So tilt or no tilt, there could be real value in maintaining CCC standards, at least until prices rebound. If sales to CCC don't go smoothly and market prices drop below support, those who can meet those standards could capture a premium," ABI said.