Why milk prices may soar to $8 if US goes over 'dairy cliff'

Brace yourself: The U.S. is about to go over the "dairy cliff," which could cause milk prices to jump.

If Congress is not able to pass a new farm bill before the 2008 farm bill expires at the end of the year, a decades-old law will then kick in. As part of this permanent legislation from 1949, the government would then buy dairy products from producers at about twice the current market rate.

"It could take a period of weeks or a month or two for there to be a trickle-down effect at the retail level," said Chris Galen, senior vice president of communications at the National Milk Producers Federation, a group of 30 dairy cooperatives. "What happens under this permanent law, the USDA is required to basically support a much higher price to dairy farmers."

Once this price increase gets passed down to shoppers, Galen said milk prices could jump as much as "$2 or $3 a gallon" possibly even as high as $7 to $8 a gallon in pricier markets. The national average for a gallon of milk in October stood at about $3.46, according to data from the Bureau of Labor Statistics. Read more >>