The devil is in the farm bill details, and no detail is probably more important than the deadline dairy farmers will be given to sign up for the new margin insurance program.
Jim Mulhern, National Milk Producer Federation president and CEO, participated in a farm bill panel that wrapped up the Associated Milk Producers Association annual meeting in Minneapolis this morning. If the deadline is too near the start of the insurance program, farmers will be able to easily project ahead what milk and feed prices will be and what levels of insurance to take.
While that would allow farmers to take maximum advantage of the program, it could also be self-defeating in the end. With margins covered and no breaks on production, the indemnity payments could be on-going. That, in turn, could raise the cost of the program to taxpayers to untenable and unsustainable levels.
Mulhern says USDA is considering a window between sign-up and program start of 90 to 120 days. That would provide at least some uncertainty to future prices.
There are a number of other questions facing USDA rule writers. Among them:
• Whether farmers can opt in and out of margin insurance and have the option of using Livestock Gross Margin insurance when they are not using margin insurance. Farm bill language is clear that farmers cannot do both at the same time.
• When margin insurance premiums are due.
• How farm transfers will be handled, and how new operations will be defined.
• Which insurance rates will apply to farms for the first 4 million lb. of production when farms have more than 4 million lb. of annual production.
It is unclear when USDA will issue the new rules. But Mulhern and others say it could be late summer before the rules are issued, even though farm bill language mandates the program be implemented September 1, 2014.
Phil Plourd, with Blimling and Associates, says the new program essentially establishes an "implied" support price of $14.87/cwt in 2014, if you add the average feed cost this year to the $4 margin insurance. In 2015, the implied support price is $14.40/cwt.
At the same time, actual market prices can fall to what will clear the market. "So you could get a [market] clearing price faster, especially in times of disaster," he says. With the old support program price of $9.90/cwt, that effectively set the floor for world prices as well as U.S. domestic prices. The new program has no such floor.
In the end, Mulhern agrees the program offers a much better safety net than the old dairy support program. "The key will be how we use this program moving forward," he says.