By Bob Yonkers, IDFA Chief Economist, Ph.D.

I have received a number of calls in the past few months from IDFA members asking about dairy industry rumors of a "tilt." A "tilt," or tilt adjustment, refers to a price adjustment by the U.S. Department of Agriculture in the purchase prices for butter and nonfat dry milk under the Milk Price Support Program. It's important for the industry to know that the provisions of this federal dairy policy were changed in the 2008 farm bill, and now USDA cannot implement a tilt adjustment since that change.

The Milk Price Support Program (known as the Dairy Price Support Program prior to the 2002 farm bill) requires USDA to purchase cheddar cheese, butter and nonfat dry milk at prices established by the department. Prior to the farm bill passed last year by Congress, USDA was required to set those purchase prices at a level that would return a farm value of $9.90 per hundredweight of milk with 3.67 percent butterfat content.

USDA used a formula, much like the product price formulas used to set minimum class prices in Federal Milk Marketing Orders, to set the exact purchase prices of cheddar cheese, butter and nonfat dry milk. For any given processing cost value (make allowance) and yield factor, there is only one cheddar cheese price that will return a farm value of $9.90.

However, there are nearly infinite combinations of butter and nonfat dry milk prices which will do so. In fact, prior to the 2008 farm bill, USDA was permitted to change the relative purchase prices of butter and nonfat dry milk no more than twice each year. An example occurred in November 2002, when USDA lowered the purchase price of nonfat dry milk from 90 cents per pound to 80 cents while simultaneously raising the purchase price of butter from 85 cents per pound to $1.05.

The 2008 farm bill changed the implementation process of the Milk Price Support Program. Instead of directing USDA to base purchase prices on a farm milk value, like $9.90, the bill wrote the purchase prices into law. Therefore, USDA can no longer make a tilt adjustment without violating the provisions of the 2008 farm bill. Unless Congress passes, and President Obama signs, new legislation to make a change, the purchase price of nonfat dry milk will remain at least 80 cents per pound, the purchase price of butter will remain at least $1.05 per pound, and the purchase price for cheddar cheese will remain least $1.10 per pound for 500-pound barrels and $1.13 for 40-pound blocks.

The 2002 farm bill did instruct USDA to lower the purchase prices if it purchases quantities in excess of amounts specified in the bill (see Table 1). Since the start of the current federal fiscal year, October 1, 2008, USDA has purchased 205.4 million pounds of nonfat dry milk and 4.6 million pounds of butter, far below the levels necessary to trigger a downward price adjustment by USDA.

So, the next time you hear a rumor that USDA is considering a "tilt," please make sure to point out that such an action is no longer allowed by law.