* House, Senate Republican leaders oppose farm plan
* Slender hope for Congress to avoid milk price surge
* Gov't will brake the 'milk price escalator'-Analyst
WASHINGTON, Dec 31 Republican leaders in the U.S. House of Representatives and Senate refused to go along with a farm-state plan to avert the "dairy cliff" on Monday, the last day to act before retail milk prices may begin climbing toward $7 a gallon.
Meanwhile some dairy processors said the plan hatched by farm-state lawmakers over the weekend for a farm bill extension would itself lead to higher dairy prices. They said the idea ought to be dropped and Congress be given a new chance to write a farm bill in the months ahead.
Without last-minute legislative action, the U.S. dairy subsidy program will be run beginning on Tuesday under an out-dated 1949 law that would roughly double current dairy prices. The Truman-era statute takes effect when Congress fails to write a new farm bill on time. The 2008 farm law expired three months ago.
To avoid higher dairy prices, leaders of the House and Senate Agriculture Committees proposed to extend key elements of the 2008 law through Sept. 30, 2013, and to create a new dairy program as part of it. The new program would compensate farmers when milk prices are low and feed prices are high.
A spokesman for House Speaker John Boehner was noncommittal if or when a vote would be called on the proposed extension. Monday evening the House adjourned until noon ET on Jan. 1 without considering farm law. A farm lobbyist said Boehner opposed the new dairy program because it would require farmers to reduce milk output if prices were too low.
Senate Republican Leader Mitch McConnell opposed the new dairy program as well and worked to keep it out of last-minute bills, a Senate staff worker told Reuters. In its place, McConnell suggested lower-cost versions of the current dairy program.
Leaders of the House and Senate agriculture committees hoped to include the farm-law extension in an overall package on deficit reduction. House Republican leaders countered with two alternatives - a one-month extension of the 2008 law or a one-month suspension of the dairy provisions of the 1949 law.
Although the so-called "permanent law" sets dairy supports at high levels, two analysts said its impact would be gradual, if inexorable, when it took effect.
It will take weeks, they said, for the Agriculture Department to find storage space and recruit inspectors to handle large-scale purchases of butter, cheese and dried milk. By making those purchases USDA would drive up the price of liquid milk and other dairy products.
USDA was certain to do all it could to prevent massive disruptions of supplies to processors, foodmakers and retailers, said analyst Mark McMinimy of Guggenheim Securities.
"As such, even if Congress careens over the 'dairy cliff,' we expect that action will be taken to prevent a steep upturn in milk prices from occurring," he said.
A trade group for processors, the International Dairy Food Association, also said that USDA could delay the impact on consumers for weeks, in part by going through a thorough process of rule-making.