The passage of the farm bill in February marks the largest shift in U.S. dairy policy in the last 70 years. The legislation represents a radical departure from dairy price supports and reliance on government.
Most notably, dairy price supports and supply management are gone and the milk income loss contracts (MILC) program will end on Aug. 31, 2014. In their place, the U.S. Department of Agriculture will provide one-size-fits-all dairy margin insurance for all producers, regardless of the size of their operation. Or dairy farmers can purchase more personalized livestock gross margin (LGM-Dairy) insurance for as long as LGM subsidies last. But producers can’t sign up for both of them.
As Jim Dickrell, Dairy Today editor, so appropriately penned, “As farmers contemplate whether to sign up for either program, they are enjoying record milk prices, soaring dairy exports and the promise of lower feed costs as new crops are harvested this year. However, they still face plenty of uncertainty: weather, regulations, immigration issues, infrastructure and even rebounding interest rates as the U.S. economy slowly recovers from recession. Those dairy farmers who choose to go it alone or opt for minimal levels of margin insurance will now be at the mercy of global markets.”
So the 930-page farm bill (which grew to more than 2,000 pages due to amendments from previous legislation) will be not ready for some time in what likely will be in excess of 20,000 pages of implementation rules and program handbook guidelines. And, as the economists who are following this will tell you, lots of unanswered questions remain.
For the portion that pertains to dairy farms, the provision that farmers can participate in the new margin insurance program or LGM-Dairy already is complicated because some producers might have LGM-Dairy contracts that cover September and October. If a margin insurance program starts Sept. 1, what does that mean when margin insurance is available?
Although this insurance likely will not be needed this year because of the higher milk prices, the USDA's Farm Service Agency announced March 31 that the MILC program will be extended through Sept. 1 as the details of the new farm bill are being worked out. Federal FSA Administrator Juan Garcia announced last week that contracts for eligible producers enrolled in MILC automatically will be extended until the termination date of the program and margin insurance becomes available.
Looking ahead, dairy farmers will have to calculate their basis for milk and feed (the difference between national and local prices) to determine what the margins actually insure, says Brian Gould, a dairy economist with the University of Wisconsin. In addition, the margin insurance calculation is based on a whole-herd ration, covering milking cows, dry cows and replacements. What happens if a farm does not raise replacements? How does that affect the margins he or she is insuring?