NEW YORK (AP) — Shares of Dean Foods rose more than 4 percent on Wednesday, as the "fiscal cliff" compromise deal will avert the potential doubling of milk prices.
THE SPARK: Dean Foods is a dairy products processor and distributor. The measure approved by Congress extends portions of the expired 2008 farm bill through September, according to Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich. She said that includes language keeping milk prices from climbing.
THE BIG PICTURE: The passage of the compromise deal is crucial for companies like Dean Foods Co. Without it, Americans could have paid $7 for a gallon of milk when the current dairy program lapsed and the government returned to a 1948 formula for calculating milk price supports.
If milk prices were to nearly double, consumers would likely cut back on milk purchases.
Another potential positive for dairy companies is that a bigger farm bill didn't go through. Extending the entire agriculture bill would have included an overhaul of dairy programs. The new programs include a voluntary insurance program for dairy producers, and those who choose that new program also would have to participate in a market stabilization program that could dictate production cuts when oversupply drives down prices.
Large food companies that process and use dairy products have said that the program could limit milk supplies and increase their costs.
SHARE ACTION: Dean Foods' shares rose 72 cents, or 4.4 percent, to $17.23 in afternoon trading. Over the past 52 weeks, the shares have traded between $10.49 and $19.17.