The Farm Bill

Many things effect the supply side of any market. Subsidies are supply-side shifters that shift the supply curve to the right. After a right sift a producer at any given price is willing to produce more of that good. Subsidies are incentives for businesses to produce more of a product because they have a guaranteed buyer.

Since the Agriculture Adjustment Act of 1933 and 1938, the government has been giving support to struggling farmers. The government initially set out to control the excess supply of crops and dairy products by paying farmers to restrict their crop size and then buy up their excess. During the 90's the government began paying out to farmers regardless of their yield. Therefore giving some farmers an incentive not to farm at all. This is one element of the Farm Bill that Congress is trying to address. Now if Congress does not pass the current Farm Bill the milk supply will shrink dramatically leading to rising prices. More milk will be sold to the government who will be the "highest bidder", thereby taking milk out of the market and reducing the supply to the average consumer.

Is the agricultural market too tied with the government to work itself out? Is it worth milk prices of $7?

http://www.csmonitor.com/USA/Politics/2013/1206/Milk-for-7-a-gallon-Farm-bill-impasse-could-send-US-off-dairy-cliff.