Interregional Analysis of Interstate Dairy Compacts

In 1981, the US dairy industry experienced a major change in federal policy. From 1950 until 1981 farm level milk prices were supported at a minimum of 75 to 90 percent of parity. Under parity the support price and farm level milk prices trended upward most years. But in 1981, support prices were de-coupled from the parity index. Instead, the support price would be based on the level of milk surplus and associated government costs. Under this new support policy, the level of price support dropped from $13.10 per hundredweight (cwt) in 1981 to $10.10 by 1990. The 1996 Farm Bill further ratchets down the support price with complete elimination by January 1, 2000. This relatively low support price has resulted in a near flat trend line for farm level milk prices but considerable within-year and year-to-year price volatility.