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Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

And the Dairy Debate Goes On

Oct 22, 2012

Trying to make sense of the dairy farm bill debate is like trying to sort out the numbers in a presidential debate over health care or federal budget deficits.

Both sides are throwing numbers around so fast and furiously, it’s hard to discern who is right. At the risk of upsetting both sides, I’ll try.
In a press release issued during World Dairy Expo earlier this month, the Wisconsin Dairy Business Association (DBA) produced a chart that showed what monthly milk income would have been in August under the Dairy Security Act in the Senate Bill and under the Goodlatte-Scott amendment still floating around the House of Representatives.

A 500-cow dairy in Wisconsin would have produced about 900,000 lb. of milk, and would have received nearly $183,000 in revenue based on a Wisconsin all-milk price of $20.30. Because the Dairy Security Act would have required the dairy to either curtail milk production 4.7% in August or forfeit that amount of revenue, DBA says farm revenue would have been $174,000.

So the claim is that the Dairy Security Act, because of the market stabilization program, would lower revenues by some $8,500.

The National Milk Producers Federation (NMPF) begs to differ, of course. Jerry Kozak, NMPF CEO, points to an analysis done by the University of Wisconsin that shows milk prices would be lower without market stabilization.

That’s because farmers would still receive insurance indemnity payments under the Goodlatte/Scott amendment if income-over-feed-cost margins reach triggering levels. As a result of those payments, they’ll likely produce more milk with the result being overall lower milk prices.
The Wisconsin analysis, done by dairy economist Mark Stephenson, suggests all-milk prices would be 10¢/cwt. less with 30% participation, 18¢/cwt. with 50% participation and 50¢/cwt. with 80% participation.

If that’s true, then the $8,500 production penalty would have been reduced by $900, $1,500 or $4,500, depending on the level of participation.

But there are other differences as well. For one, the Dairy Security Act covers 90% of a producer’s base milk production. For another, there is no charge for base level coverage. For a third, producers can sign up annually for supplemental insurance. And finally, the base period for the supplemental insurance is based on the previous year’s milk production.

Under Goodlatte/Scott, the coverage level is set at 80% of production, there’s a one-time sign-up, the base is set and only the first 4 million pounds of a producer’s milk base is covered at no charge under the basic program.

All those difference add up, according to Stephenson’s analysis. The net revenue from the Dairy Security Act for a 500-cow herd covered at 25% of production at $6.50 is about $10,600 per year. Under Goodlatte/Scott, it’s $4,600. That’s $12/cow, but over the five-year life of a farm bill, that adds up to a $30,000 difference.

Another point of contention is what government costs would be under the two programs. Secretary of Agriculture Tom Vilsack argues that supply management will be required. “Every time we get good prices, farmers increase production and we create greater stocks on the supply side,” he says.

But the Wisconsin analysis suggests otherwise. Yes, producers will make more milk under Goodlatte because they are assured of slightly better prices and indemnity payments during low periods. “But because low prices are not as low, you don’t have as many producers falling out of business during the trough,” says Stephenson. “As a result, the following highs are not as high because you have more milk production during recovery.”

The Congressional Budget Office, who scored the programs, pretty much agrees. Under current programs (dairy prices supports, Milk Income Loss Contract payments), the CBO budget score is $248 million over five years. CBO scored the Dairy Security Act at $107 million, and Goodlatte at $60 million.

So here’s what it boils down to:
• The Dairy Security Act offers higher milk prices, higher net returns, greater volatility, higher government costs and lower exports.
• Goodlatte offers lower prices and lower returns, lower government costs, higher exports but no intrusive market stabilization program.

The choice is yours.

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