On July 31, 2009, Secretary of Agriculture Vilsack announced that the Obama Administration would be increasing the amount paid for dairy products through the Dairy Product Price Support Program. The USDA estimates this action will increase dairy farmers’ revenues by $43 million from August to October of 2009.

The USDA’s pay price for nonfat dry milk is being raised 12 cents a pound from $0.80 to $0.92 and its pay price for cheddar cheese is being increased 18 cents a pound for both blocks and barrels of cheddar. The price of blocks will rise from $1.13 per pound to $1.31 per pound while the barrel price will increase from $1.10 per pound to $1.28 per pound.

Increases in the pay prices from nonfat dry milk and cheddar cheese will boost the all milk price for farmers. The USDA estimates that dairy farmers’ revenues will rise by $243 million as the higher pay prices for nonfat dry milk and cheddar cheese translate into higher pay prices for raw milk.

According to data reported by the USDA’S National Agricultural Statistics Service, US dairy producers are currently about 15.5 billion pounds of milk per month. Thus total milk production over the August-October period should be around 46.5 billion pounds. So the additional $243 million of revenues earned by US dairy producers, as a result of higher pay prices for nonfat dry milk and cheese, will be spread across 465 million hundredweights of milk. This means the average per hundredweight earnings to producers will be slightly greater than 50 cents when higher pay prices are in effect for nonfat dry milk and cheddar cheese.

Normally the $0.18 per pound increase in the cheese price would be expected to raise the milk price by about $1.80 per CWT since it takes roughly 10 pounds of milk to produce a pound of cheese. But the USDA estimates the pay price for milk will only be rising by about $0.50 per CWT. This lower than expected rise in the price of milk is explained by the fact that the cheese price is not going to be rising the full 18 cents per pound. This is because because cheese price had not been down at the previous support level. So the increases in the support prices for blocks and barrels of cheddar will not have as big of impact on milk prices as one might normally expect.

There is no doubt dairy producers will be pleased to receive another 50 cents per CWT for milk. But it needs to be understood this small bump in milk price is not going to solve the cash flow and income problems of dairy producers across the US.