The government sets a minimum price for milk to cover dairy farmers’ production costs.  If the market price drops below that, the government buys dairy products from farmers to buoy prices and increase demand. Since milk prices have remained above that minimum price in recent years, dairy farmers usually do better by selling their products commercially rather than to the government.

Without last-minute Congressional action, the government would have to follow an antiquated 1949 farm law that would force Washington to buy dairy products at around $40 per hundredweight — roughly twice the current market price — to drive up the price of milk to cover dairy producers’ cost.

Higher prices would be based on what dairy farm production costs were in 1949, when milk production was almost all done by hand. Because of adjustments for inflation and other technical formulas, the government would be forced by law to buy milk at roughly twice the current market prices to maintain a stable milk market.

But the market would be anything but stable. Farmers, at first, would experience a financial windfall as they rushed to sell dairy products to the government at higher prices than those they would get on the commercial market. Then the prices customers pay at the supermarket would surge as shortages developed and fewer gallons of milk were available for consumers and for manufacturers of products like cheese and butter.  Ultimately, reverting to 1949 policies could probably force the makers of butter, cheese, yogurt and other dairy products to look for cheaper alternatives, like imported milk from countries like New Zealand.

http://www.nytimes.com/2012/12/21/us/milk-prices-could-double-as-farm-bill-stalls.html