Budget Sequestration Could Impact MILC Payments

February 15, 2013 03:50 AM

Though it’s not absolutely clear whether sequestration of the Federal Budget March 1 will impact farm payments, Cornell University dairy economist Andy Novakovic believes Milk Income Loss Contract (MILC) payments could be affected.

"I honestly don’t know the answer to that question," he says. "But my hunch is that payments to farmers will be vulnerable."

That’s important, because based on current futures prices, MILC payments would be triggered this spring, ranging from 56¢/cwt in March to 19¢/cwt in June.

The Congressional Budget Office (CBO) released the first of three annual Federal Budget baselines this week. The January baseline, just released, is a prelude to a more official estimate of government expenditures released in March. But it’s a good indication of where CBO expects the budget to head, says Novakovic.

The baseline is a 10-year projection. For dairy, CBO is estimating that the U.S. all-milk price will average $18.60/cwt over the next decade, give or take 20¢/cwt. It also projects that corn prices will moderate substantially, averaging $4.60/bu. Soybean prices will also come down, averaging $10.60/bu. That leaves an income over feed cost margin of $9.50 to $10/cwt, which mirrors some of the best margins the dairy industry has seen in the last two years.

Novakovic’s full comments can be viewed here

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