Farm Bill dairy title summarized

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The House and Senate Conferees released a Farm Bill Monday night. With the House rules requiring three days for a vote, and the House Republicans going on retreat on Thursday, reports indicated House Majority Leader Eric Cantor (R-Va.) has included the Farm Bill conference report on his legislative schedule for possible consideration on Wednesday.

Read the Farm Bill conference report here. The Dairy Title is on pages 95-117 of the 949-page document.

Under the bill, USDA must establish a Margin Protection Program for dairy producers no later than Sept. 1, 2014. All U.S. dairy operations will be eligible to participate, provided they register (method to be determined by USDA) and pay an annual $100 fee to cover administrative costs.

If a participating dairy operation is operated by more than one producer, all will be treated as a single dairy operation. If a dairy producer operates two or more dairy operations, each must register separately to participate.


Production history

To participate, dairy operations must establish production history. Initially, the production history of a dairy operation for the margin protection program is equal to the highest annual milk marketings of the participating dairy operation during any one of the 2011, 2012 or 2013 calendar years.  The individual production history will grow by the U.S. average production growth in subsequent years. So, producers who expand significantly beyond average U.S. growth will not be able to protect the additional milk production under this program. Beyond that, there is no significant penalty – there is no dairy market stabilization program.

For participating dairy farms in operation for less than a year, the participating dairy operation may determine a production history by using the volume of the actual milk marketings for the months the participating dairy operation has been in operation extrapolated to a yearly amount; or estimate of the actual milk marketings of the participating dairy operation based on the herd size relative to the national rolling herd average.


Protection, premiums

Dairy operations may select margin insurance to protect between a $4.00/cwt. to $8.00/cwt. milk-feed price margin in 50¢ increments. They may also elect to cover a percentage of their milk production in 5% increments, beginning with 25% and not exceeding 90% of the production history.

There are two tiers of pricing for annual premiums. The first 4 million lbs. of milk sold annually will have significantly lower premiums than milk production above 4 million lbs. The $4.00/cwt. margin coverage level is available at no cost, but the premiums become increasingly expensive as margins increase. Additionally, premiums below the $8.00 level will be discounted by 25% for the first two years of the program (2014 & 2015) for the first 4 million lbs. of production history.

Margin                     Premium per cwt. on nnual milk production

Coverage                   < 4 million lbs.         > 4 million lbs.

$4.00                                None                     None

$4.50                                $0.01                    $0.02

$5.00                                $0.03                    $0.04

$5.50                                $0.04                    $0.10

$6.00                               $0.06                     $0.16

$6.50                               $0.09                     $0.29

$7.00                               $0.22                     $0.83

$7.50                              $0.30                     $1.06

$8.00                              $0.48                     $1.36


Calculation of average feed costs

USDA will calculate a monthly national average feed cost to produce 100 lbs. of milk, using:

• the average price of corn per bushel received by U.S. farmers, as reported in the monthly Ag Prices report, multiplied by 1.0728; plus

• the average price of soybean meal received in central Illinois, as reported in USDA’s Market News Monthly Soybean Meal Price report, multiplied by 0.00735; plus

• the price of alfalfa hay received during that month by U.S. farmers, as reported in the monthly Ag Prices report, multiplied by 0.0137.


Calculation of actual dairy production margin

USDA will calculate the actual dairy production margin for each consecutive 2-month period by subtracting the average feed cost for the consecutive 2-month period from the all-milk price for that consecutive 2-month period.



A participating dairy operation shall receive a margin protection payment whenever the average actual dairy production margin for a consecutive 2-month period is less than the margin level selected by the participating dairy operation. Payment will be based on the percentage of annual milk production covered, divided by 6 for the two-month period.

USDA will create administrative rules and enforcement procedures, and establish an appeals process. The margin protection program is scheduled to end on Dec. 31, 2018.


LGM-Dairy, MILC, other programs

A dairy operation may participate in the margin protection program or the USDA Risk Management Agency’s Livestock Gross Margin for Dairy (LGM-Dairy) program, but not both.

The bill provides for the temporary continuation of the Milk Income Loss Contract (MILC) program until the Margin Protection Program is in place, or Sept. 1, 2014, whichever is sooner.

The bill repeals the Dairy Product Price Support Program, Dairy Export Incentive Program and the Federal Milk Marketing Order Review Commission, but extends the Dairy Forward Pricing Program, the Dairy Indemnity Program and the Dairy Promotion and Research Program.


Dairy Production Donation Program

Within 120 days of initial operation of the Margin Protection Program, USDA must establish and administer a dairy product donation program to address low-margin periods experienced by participating dairy operations; and provide nutrition assistance to individuals in low-income groups.

In general, whenever the actual dairy production margin has been $4.00 or less per hundredweight for each of the immediately preceding 2 months, USDA will purchase dairy products, at prevailing market prices, for a maximum of three consecutive months, or when the margin returns above $4.00/cwt.

USDA will consult with public and private nonprofit organizations organized to feed low-income populations to determine types and quantities of dairy products to purchase. USDA must distribute, but not store, the dairy products purchased under the dairy product donation program in a manner that encourages the domestic consumption.

To protect U.S. export markets, the program also has triggers to stop domestic dairy product purchases if U.S. prices are 5% or more above world prices.

The dairy product donation program shall end on Dec. 31, 2018.

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new york  |  January, 28, 2014 at 08:35 AM

The only clear winner I see is insurance companies. Why does this not suprise me.

New York  |  January, 28, 2014 at 10:32 AM

Just out of curiosity, where do you see insurance companies in play in the proposed margin protection program? It's run and funded through the USDA, as I read it...

MI  |  January, 28, 2014 at 10:35 AM

I agree completely it will just be another bill to pay. When cash is already short.

Mi  |  January, 28, 2014 at 11:49 AM

Crop insurance is through the Risk Management Agency, but is sold by private companies just like LGM Dairy is. I understand this program will be handled the same way. USDA will set the profit margin the insurance companies like Rain and Hail will make.

new york  |  January, 28, 2014 at 12:20 PM

LGM dairy thru may 2012 collected $45M in premiums, of which producers have paid $26M and the USDA has chipped in $20M, while $1.06M has been paid out in indemnities. source,pdf.pdf In other words between 2009 and may of 2012 dairy farmers would have had about $25M more in their pockets had they not participated and taxpayers would have saved $20M.

WI  |  January, 28, 2014 at 01:54 PM

Wonder how far 20million will go with Obamacare. By the way you understand insurance right? You pay the premiums hoping to never have to use it! Unfortunately some day you do. Just like crop insurance we say. How many huge crop farm auctions do you see after last years drought? I'm sure it was rewarding for the crop guys to get some of their premiums back. It would be nice to be self insured by putting money in savings but then we lose it to taxes. Why not have tax payers share in our risk(their perishable food supply)and now in reducing trade deficit by taking out an insurance policy.

Loren Lopes    
Turlock, California  |  January, 31, 2014 at 08:33 AM

I am hopeful this new concept will stabilize the dairy farmers future. This is not my choice of covering the cost of production without a true Milk Price on the first tier of production. However it is amazing how the authors have made an attempt to include cost of production and supply management in this concept. This could have been achieved without so much cost to the producer by pricing the milk correctly. If milk pricing is altered to lower values these payments will not come close to meeting the goals they were intended for. If the money is not used in any year it should be carried over for the next year including interest but for now we should be happy to have a farm bill to work with. Dairy farmers will have to be on there political toes in the future to protect the intent of this concept.

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