Dairy Talk: The Farm Bill Game

November 25, 2013 07:35 PM
Dickrell 2013 Blue

By the time you read this, maybe, just maybe, you might be at the point of having to make a decision on whether you will participate in a new farm bill dairy program.

In anticipation of final passage, we asked Marin Bozic, a dairy economist with the University of Minnesota, to lay out some of the things dairy farmers should consider. He presented those thoughts at our Elite Producer Business Conference (EPBC) in Las Vegas last month.

The devil, of course, will be in the details. If the Senate and House Conference Committee accepts the Senate version, the dairy program would include a market stabilization program, which would require participants to reduce milk production (or forfeit a portion of their milk check) if margins fall below certain thresholds. If the House version prevails, there would be no market stabilization program.

Another critical factor will be deadlines for annual sign-up. Note: If you sign up to participate in the Senate version, you’ll need to participate for five years. But the program would allow you to change the level of margin protection you want each year. The House version allows you to participate on an annual basis.

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Bonus Content

Farm Bill presentation, Link to Bozic blog

When you’ll be required to make that decision each year is critical. Under the House language, you’ll be required to pay margin insurance premiums by Jan. 15 of the calendar year of participation. This would allow farmers to know market conditions for the first half of the year and give them an idea if indemnities are likely.

But if the program is patterned after crop insurance, deadlines might be set at March 15 for the federal fiscal year starting Sept. 30. That way, farmers won’t know what crop growing conditions are and will be far less able to predict margins.

Dairy Today polled EPBC attendees last month on their preference. Not surprisingly, more people preferred the Jan. 15 deadline. Twenty-eight percent said they’d participate if the deadline under the Senate version was Jan. 15 versus 17% for March 15. The trend was similar for the House version, with 34% preferring Jan. 15 versus 25% preferring March 15.

Interestingly, 44% were leaning against participation in either program if the sign-up deadline was March 15. (Non-participation ranged from 33% with the Jan. 15 sign-up date under the Senate version versus 22% under the House version.)

The take-home message is that farmers would love a program that gives them a greater chance of return on their insurance "investment." That’s human nature, I guess.

But, in my opinion, that really doesn’t drive the industry toward a risk-management mindset. It’s more of a reversion to a "farm the government" mindset.

Ohio State University analysis shows the new dairy program could cost up to two to three times that of the Milk Income Loss Contract (MILC) program. Without market stabilization, the analysis shows costs could be three times MILC. Even with an effective market stabilization, costs could double.

USDA rule-writers have a dilemma on their hands. Go with a March 15 sign-up, and participation could suffer. Go with the Jan. 15 sign-up, and costs could soar.

But here’s the thing: If the price tag to taxpayers gets too high, it might be our last farm bill.

jim dickrell, editor

 JIM DICKRELL is the Editor of Dairy Today. You can contact him at dairytoday@farmjournal.com.


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