After passing the “One Big Beautiful Bill act” (OBBB) last Thursday, the American dairy farmer has new legislation to hopefully help aid prices, offer tax relief and boost current insurance programs. Now that the dust has settled and the ink has dried, here is a closer look at what will affect the average dairy producer going forward.
The OBBB first and foremost extended the Dairy Margin Coverage (DMC) through 2031. This will ensure that producers have no gap in the insurance coverage that helps support income through the RMA. There are a few key changes made to make it a little more attractive to the producer such as changing the Tier 1 coverage limit from 5 million to 6 million pounds of milk per farm. As production per cow increases and farm sizes grow, this 20% increase was seen as necessary to support the farms that feed us. Another important change is farms can now use the highest production year from 2021-2023 as their baseline. There is also a 25% discount for producers to commit on multiple year enrollment on their premiums.
In an effort to ensure transparency for Class III and IV milk, both the House and Senate agreed that requiring a biennial USDA cost survey of dairy processors should be mandatory. The goal is to better align make-allowance estimates with timely real costs of producing cheese, butter and nonfat dry milk so the processor has less marketing power and help ensure the long-term pricing fairness.
As many dairy producers also have row crops, there are many benefits shared by extending the commodity and risk management programs like ARC and PLC as well. Higher payment caps (12.5%), higher ARC coverage (90%), higher reference prices and the ability to update base acres are a few of the highlights to help farmers.
There are many tax benefits on this bill as well. One key change is allowing farm implements to be deducted in full year one. Making it no longer a requirement to deduct large equipment purchases over several years. This puts the financial decisions in the farmer’s hands for how they want to expense large purchases. The bill also made the Section 199A deduction permanent to deduct up to 20% of business-related income as well as increasing the small business expense threshold.
For our future family farms, there are provisions that allow death tax exemptions which are now permanent. It increases the doubled Death Tax exemption which will aid in passing down farms and assets to the younger generation. While the new farmers are getting started, they have now increased the Beginning Farmer premium subsidy which helps cover a part of the cost of crop insurance and extended it from 5 to 10 years of aid.
On the animal health front, the bill ads verbiage that the USDA must spend $233 million per year on animal disease research and response efforts. This pumps significantly more money into the National Animal Disease Preparedness program as well as research in the vaccine production. With all eyes on screwworm lately, this is important for response time and veterinary preparedness to help diagnose faster as well as aid in the training of state responders on all diseases but highlights the importance of controlling threats such as new world screwworm.
While there are imperfections in all government programs, the aim of this bill was to help the American farmer and to support the family farm as well as the communities around them. We’ll learn more as time goes on about the good and the bad this bill brings but the intentions of the bill are clear and the benefits to the dairy farm, while subtle could be what makes the next five years a little easier on dairy farm economics.
Sarah Jungman is a commodity broker with AgMarket.Net and AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Sarah’s office is located in Winterset, Iowa and she may be reached at 515-272-5799 or through the website www.agmarket.net.
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