Commodities & markets, Management, Policy, Studies

Prospects for the California milk pool quota market

Abstract: We find that the Agricultural Act of 2014 has mixed effects on the market for California milk pool quota. First, the new Margin Protection Program (MPP) likely lowers the expected price of quota by increasing future expected dairy profitability. However, the MPP likely mitigates temporary declines in the price of quota by increasing liquidity during financial stress. The proposed federal milk marketing order for California would also have mixed effects on the price of quota. Higher minimum prices cause slightly lower farm profits and thereby raise quota prices. However, de-pooling would reduce the amount of milk eligible for the pool and shift down the demand for quota causing a lower price. Finally, by reducing the perceived quota policy risk, the farm bill contributed to the rise in the price of quota in 2014.

The Agricultural Act of 2014 and Prospects for the California Milk Pool Quota Market. Sumner, D.A. and J. Yu. Journal of Agribusiness. 2014

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