An initial read of the dairy provisions of the House/Senate farm bill conference report suggests farmers with less than 200 cows will pay cheaper, more highly subsidize margin insurance premiums. The deal these smaller farms is even sweeter the first two years of the five-year program, with premiums reduced by 25% of established rates for the first 4 million lb. of production.
The report was released late Monday. The bill, if it becomes law, directs the Secretary of Agriculture to establish a dairy margin insurance program by September 1, 2014. In the interim, the Milk Income Loss Contract (MILC) program would be re-instated. It would expire on August 31, 2014.
Though the program contains no market stabilization program, it does establish a production base for each farm, which would be the highest milk production of 2011, 2012 or 2013. The base would then be adjusted by the percentage increase in national average milk production for each year moving forward. Producers could elect to cover from 25% to 90% of their production base, and insure margins (the difference between the all-milk price and feed costs) ranging from $4 to $8/cwt, in 50¢ increments.
Dairy operations could participate in either the margin insurance program or the dairy livestock gross margin program under the Federal Crop Insurance Act, but not both.
The new farm bill would end the 70-year-old dairy price support program. But it would also establish a Dairy Product Donation Program, which would buy dairy products at prevailing market prices for donation to domestic feeding programs. It would be triggered when the dairy margin has been $4/cwt or less for each of the immediately preceding two months. The bill has a number of triggers when the program must end, including provisions to keep U.S. dairy commodity prices competitive on world markets.
The new bill also eliminates the Dairy Export Incentive Program, but renews the dairy forward contract program. This latter program allows proprietary plants to forward contract with dairy producers for Class II, III and IV milk without being subject to Federal Milk Market Order price minimums.
While the House/Senate conference report spells out new provisions, exactly how they’ll be implemented will be determined in part by how USDA writes the regulations. For example, sign-up deadlines and premium payment methods are being left up to the Secretary of Agriculture.
Dairy economists who have viewed the report say it’s in everyone’s interest that the rules be clearly and quickly written. Dairy farmers will need some time to understand the new program.
You can read the conference report here and view the margin insurance premiums (scroll to page 105).