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No Clear Winner in Dairy Bills

April 9, 2013
By: Jim Dickrell, Dairy Today Editor

Analysis of the two competing Farm Bill dairy titles shows no clear economic winner.

Sometimes the Dairy Security Act (DSA), which includes a market stabilization program, provides more net revenue. Other times, the so-called Goodlatte/Scott amendment (G/S) which contains no market stabilization program, provides more.

The analysis is presented by Marin Bozic, a University of Minnesota dairy economist. But the work was done in collaboration with Michigan State, Ohio State and the University of Wisconsin. The analysis was based on March 15, 2015 futures prices. The economists assumed 75% participation in both programs.

For a 150-cow dairy, the returns under DSA range from $59/cow to $82 depending on the level of supplemental margin insurance selected. Under G/S, they range from $64 to $98.

The DSA analysis includes a $24/cow market stabilization cost and a $19/cow price boost due to the cutback in milk supplies. Under DSA, there could be a "free rider" problem because those who do not participate in the program would still benefit from the market rise from those who cut back production. 

For a 3,000-cow dairy, the returns under DSA range from $41/cow to $96 depending on the level of supplemental margin insurance selected. Under G/S, they range from $36 to $76.

If either program had been in place in 2013, there was a high likelihood of premiums being paid under the program and a 30% probability that the market stabilization program would have been triggered, adds John Newton, a Ph. D. candidate in ag economics at Ohio State.

Both Bozic and Newton spoke at the National Dairy Producer Conference here in Indianapolis this week. Bozic presented only the DSA analysis at the conference. His work on the Goodlatte/Scott amendment was presented last week in Minnesota.

The programs are effective against protecting against catastrophic risk, he says, and they pay the most when farms need it the most.

The team of ag economists are developing an on-line decision tool that will allow dairy farmers to plug in their own on-farm numbers to determine if participation is economic for their farms. It will also help them determine which level of supplemental insurance would be most likely to provide a benefit.

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