Dairy’s controversial market stabilization program comes under the spotlight this week.

The U.S. House of Representatives begins its long-anticipated farm bill debate today. For dairy, the debate will center on whether or not to include the Goodlatte-Scott (G/S) amendment, which would strip the market stabilization program from the Dairy Security Act (DSA).

For the dairy industry, this debate has been years in the making—both figuratively and literally. Last year, the House Republican leadership refused to bring the farm bill to the floor. Some say dairy—supply management, in particular—was the reason that the Republicans refused to move the bill. Others say cuts to food stamps—just prior to the 2012 elections—were the real reason Republicans wanted to avoid the debate.

Finally, this week, we will have the debate. Proponents of Goodlatte-Scott say a market stabilization program will impede growth, hurt dairy exports and (according to the Congressional Budget Office) cost the government more. Opponents say that without supply management, there could be prolonged periods of low margins that could ultimately cost the government billions in margin insurance premiums. Such run-away government costs would ultimately doom the program—if not immediately, then in 2018 when it would be up for renewal.

Both sides have a point. But I think the biggest problem with market stabilization will be its implementation. It will be extremely messy to administer. It will be even tougher to implement on the farm, not knowing if you have to cut back for one month, or two, or six. And farmers—being farmers—will find ways to work the system. That is inevitable. Even Collin Peterson (D-Minn.), the ranking minority member of the House Ag Committee, has admitted there is more fraud in crop insurance than there is in food stamps.

The problem lies in the premium subsidies of the margin protection program. Most dairy brokers say it takes at least 50¢ per cwt. using conventional risk management tools such as forward pricing, futures contracts and options to do a proper job of managing risk. But DSA and G/S write into law premiums that don’t approach the 50¢ threshold until $7.50 margins.

At these levels of subsidies, producers will flock to these programs. Like crop insurance, they virtually take the market risk out of farming. But that begs the question: Do we want the farm bill, aka government, to eliminate risk, skewing markets in the process? Exhibit A: Ethanol, corn markets and land prices.

Marin Bozic, a University of Minnesota dairy economist, adds that there is a third option—Livestock Gross Margin Insurance for Dairy. It’s still in the farm bill, but has been under-utilized because it has not been consistently offered. Again, government is subsidizing premiums. When those subsidies run out, LGM-Dairy is not offered.

But the beauty of LGM-Dairy is that it’s not a one-size-fits-all program. Dairy farmers can actually base their insurance coverage on their own rations and how much milk they want covered. So why not take some of the premium subsidies being thrown at DSA and G/S, and put that money toward continual coverage of LGM-Dairy?

Farm bills should provide catastrophic risk protection. But they should not totally insulate anyone from market forces.

You can read more on LGM-Dairy here and here.

Without intervention, 40% of calves that need more than minor assistance at birth will die.

Rather than speculate on the Farm Bill or immigration reform and tell you stuff you already know, I thought I’d use this space this week to relay a presentation by Colorado State Veterinarian Franklyn Garry.

Garry spoke at the Minnesota Dairy Health Conference a couple of weeks ago and gave some really simple management tips on preventing stillborn calves. Many of these calves are born alive, but die within a few hours.

Roughly 40% of calves that need more than minor assistance at birth will either die immediately or die later. "And those that do survive have increased likelihood of respiratory and digestive problems later in their lives," says Garry.

Using these tips, you can save up to half of at-risk calves. That’s a pretty big payback for all the investment you have in these newborns.

First-calf Holstein heifers always have the most problems with dystocia. Ensuring heifers are well-grown and in proper condition at calving is the place to start. Using calving-ease bulls on heifers is also critical.

Personnel also must be trained in the birthing process. Frequent observation at calving is critical to determine if and when calving assistance is required. Producers should work with their veterinarians to train employees on both the birthing process and then when and how to intervene.

Once the calf is born, there are three simple things that should be done immediately:

• Stimulate and enhance breathing. "To help calves breath, mucus in the upper airway should be removed via suction or positioning the head and neck to drain," says Garry.
The common practice of suspending calves from their rear legs to clear fluids can be counterproductive. "We prefer to place calves in sternal recumbency (normal upright lying position) immediately after birth," he says.

If calves have not started breathing, the use of mechanical devices such as an Ambu bag provides positive ventilation. Vigorous rubbing of the ribs with towels also stimulates the calf to breath.

• Minimize heat loss. Calves should maintain a body temperature of 101°F. Dry calves immediately after birth. Calves should then be placed in deep-bedded areas where they can nest. In winter, you might need to provide supplemental heat via heat lamps, warming boxes or calf jackets.

• Administer colostrum. In addition to improving immune function, colostrum provides essential fluids, increases blood volume and improves circulation. "Colostrum is also an important source of energy," says Garry. "This energy and the fact that colostrum is given to calves at 100° to 105°F helps support their body temperature."

Using these simple management techniques immediately after birth can reduce stillborn rates significantly with little or no out-of-pocket costs. "There’s no rocket science here," Garry says.

You can read more on reducing dystocia and stillbirths here and here.

Here's what the real focus should be, say two young and very smart dairy economists.

The debate over dairy policy has boiled down to whether or not to have supply management. But that may well be the wrong question, say two young (and very smart) dairy economists who spoke at the National Workshop for Dairy Economists and Policy Analysts in Boston last week.

Marin Bozic, a dairy economist at the University of Minnesota, and John Newton, a Ph. D. candidate in agricultural economics at Ohio State, say the real questions should center on the margin insurance program and the timing of the annual decisions. They are part of a team of economists from Michigan, Minnesota, Ohio and Wisconsin who have been analyzing dairy policy options contained in the farm bill.

As currently proposed in both the Dairy Security Act and the Dairy Freedom Act (a.k.a. the Goodlatte/Scott amendment that strips out supply management), margin insurance is designed in such way that "that the benefits of participation in either program very likely highly exceed the cost of compliance [even with supply management]," says Bozic.

The consequence of that could be a return of milk over-supply similar to the 1980s, all again financed by government. Here’s why:

• Lenders say the "big hurt" on producer bottom lines come when income-over-feed-cost margins fall below $6.50. Either proposal offers reasonably priced insurance (23¢ to 29¢/cwt.). And taking out that level of insurance removes 70% of catastrophic losses, says Bozic. The problem is that both programs try to do more, and offer high subsidies at even higher margin levels. For example, a study by the University of Missouri Scott Brown shows that a representative large dairy farm of 2,000 cows would benefit the most from insuring at $7/cwt. under the Dairy Freedom Act and $7.50/cwt. under the Dairy Security Act.

• The Dairy Market Stabilization Program (DMSP), or supply management, only delays expansion and does not cap it. Furthermore, DMSP only kicks in at $6.00, whereas average IOFC margins over the past decade were over $8.00. That means that DMSP would do little to prevent average milk prices from declining up to $2/cwt. in case of chronic milk oversupply.

• Insurance premiums are locked in for the five-year life of the program. "The dairy margin insurance program was originally intended to lock in a producer to a coverage level for five years," says Newton. "The premiums reflected the five-year commitment and were likely close to actuarially fair (given some level of subsidization)."

But now, farmers can change supplemental coverage annually while the premiums remain fixed. While 12-month price forecasts are far from perfect, they are much better than 60-month forecasts. So farmers have a much better chance of guessing margins—and thus how much supplement coverage to purchase.

The result is like taking out flood insurance only in years when the river is rising. Newton suggests the annual signup for the program be in March (like crop insurance), with coverage starting with the new fiscal year on Oct. 1.

The danger of the current farm bill debate is that DSA and DFA proponents are so locked into their positions and the rhetoric of defending those positions that the subtleties of the options are getting lost in the hyperbole.

If Bozic and Newton are right, farmers who sign up for margin insurance could be living off of insurance indemnities in the new policy regime. Those who don’t sign up could be in for a world of hurt. And the government could be funding far more than it bargained for.

Bozic and Newton’s presentations can be downloaded here.

In the two embattled proposals for federal dairy legislation, what’s left out can be as important as what’s still there in black and white.

When it comes to loan documents, warranties, insurance policies and just about any other legally binding piece of paper, ignoring the fine print is done so at your peril.

In the case of re-introduced federal dairy legislation, reading the fine print is the easy part. You actually have to go back and compare what was in the original proposal to what is being proposed currently. What’s left out can be as important as what’s still in front of you in black and white.

Such is the case with the Goodlatte-Scott amendment, known as the Dairy Freedom Act, re-introduced to the House of Representatives April 25. In the original version, dairy farmers could sign up for margin insurance only at the beginning of program. Once they did, their production base was fixed for the life of the program. The new version simply eliminates Section (e) (1), thus allowing farmers to change coverage and update production history each year.

In the past, opponents of Goodlatte-Scott, most notably the National Milk Producers Federation, pointed out that Goodlatte-Scott provides less coverage (80% of a farmer’s production history) than the Dairy Security Act (which provides 90% coverage). Opponents also pointed out that the Goodlatte-Scott coverage would "decline" annually if a farm expanded through the five-year farm bill. What was 80% coverage could become 70% or 60% or less, depending on the amount of the expansion.

Personally, I never saw that as a huge impediment. What farm now has 60% or 70% or 80% risk management/margin coverage? But it was a talking point—and a negative one at that.

The cost of Goodlatte-Scott has also increased with the ability to increase a farm’s annual production history. Prior to the change, the Congressional Budget Office (CBO) estimated Goodlatte-Scott would cost taxpayers $334 million over 10 years. The new number is $434 million. Most of us would say $100 million is a pretty significant budget hit, even if it’s over 10 years.

But keep in mind the Dairy Security Act’s CBO score is $441 million over 10 years. National Milk scoffs at the CBO scoring process because DSA still costs the government $7 million more than Goodlatte-Scott. That’s despite the fact DSA contains the market stabilization program (which is specifically designed to keep government costs from sky-rocketing).

"I don’t believe the CBO numbers," says Jerry Kozak, NMPF president and CEO. "CBO doesn’t have the intellectual capacity to calculate dairy stabilization program impacts."

That's strong stuff, given NMPF touted CBO-scored budget savings when the DSA was originally introduced. 

In the end, though, the dairy debate won’t be won or lost on CBO scoring minutiae. Keep in mind that the entire farm bill’s price tag comes in at nearly $1 trillion. Dairy’s portion, be it $434 or $441 million, works out to 0.04% or there-about. Pencil dust, as the pundits are fond of saying.

Mark-up in both the House and Senate Agriculture Committees is scheduled this month. You can bet your bottom dollar more changes are on the way.

For more on the Goodlatte-Scott amendment, click here. 

For dairy farmers, the key is to stay positive, informed and engaged.

It would be easy to get caught up in irrational exuberance surrounding the Senate’s "Gang of Eight" immigration reform that was announced last week.

"Immigration reform has entered the promised land, with dairy at the top of the list," says one prominent immigration attorney, who will remain unnamed on the chance that things turn sour. The announcement, despite months and years of debate in Congress and the country, is really just the beginning salvo.

Don’t get me wrong. The Senate package is a huge win for U.S. dairy farmers. "Dairy will be the single biggest winner in agriculture," says Craig Regelbrugge, co-chairman of the Agriculture Coalition for Immigration Reform.

But there’s still a long, hard road to go.

Among the provisions:

• A "blue card" that allows existing, currently undocumented workers to remain at their jobs. To qualify, they will have to demonstrate they have been employed for 100 days between Jan. 1, 2011 and Dec. 31, 2012 on a farm, pass a background check, have a clean criminal record and pay a $100 fine.

• To achieve permanent residency status, employees must work at least 100 days a year for five years or at least 150 days a year for three years. They must show that they have paid all taxes, have not been convicted of any serious crime, and pay a $400 fine.

• The package also provides a provision for "future workers," that allows dairy farmers to legally recruit new foreign-born workers to replace those that return home.

• The program would also lessen the chance, at least in the first five years of implementation, of Immigration and Custom Enforcement raids and document sweeps. Eventually, farmers would have to verify identification documentation through the E-Verify system, but that would likely not come into play for five years.

• The reforms would also establish minimum wages for dairy workers: $11.09/hour in 2015 and $11.37/hour in 2016. These would then be annually indexed, with wages increased between 1.5% and 2.5%. Famers would also have to provide housing or pay a housing allowance —generally in the range of an additional $1/hour.

Dairy farmers might nitpick some of these provisions, but they’ll so do at their peril. The details of the ag package were carefully negotiated among a laundry list of ag organizations all now members of the Agricultural Workforce Coalition.

Members include Farm Bureau, Farmers Union, the National Milk Producers Federation, regional dairy organizations, and—most importantly to the compromise—the United Farm Workers. Keeping this coalition intact is critical.

If the 844-page "Border Security, Economic Opportunity, and Immigration Modernization Act" isn’t shredded in the Senate, it faces a bare-knuckle brawl in the House of Representatives. Will it survive? "Who the hell knows," one Washington lobbyist told me last week. "Nothing in Washington is easy."

For dairy farmers, the key is to stay positive, informed and engaged. When the time comes, dairy farmers must personally contact their legislators to make certain legislators understand dairy farmers support the legislation. Congressmen and women must understand there will be campaign funding and electoral consequences if their votes do not support immigration reform.

That sounds crass, but it is now how the game is played.

More detail on the Senate package can be read here. 

You can read the full bill here. 

Note: Western dairy editor Catherine Merlo also contributed to this report.