A few weeks ago, I received an optimistic e-mail from a producer who milks 600 cows in Iowa: "A $13 September Class III price isn't too bad. Our basis is $2 to $2.40, so we will have decent margins… We've stopped voluntary culling for the short term, guess others will do the same.”
A few days earlier, I was on a Wisconsin dairy milking 700 cows. The dairy had a tank average of 80 lb./cow, even in mid-August. But a major facility upgrade there, as well as interest, pushed cost of production over $16/cow.
One size doesn't fit all when it comes to federal dairy programs. The recent, and perhaps temporary, boost in the dairy support price could push the Iowa dairy into profitability. Not so for the Wisconsin dairy. Pushing the price even higher to bring the Wisconsin dairy into the black would give my Iowa buddy reason to add cows.
Supply management proponents
would argue this is precisely why we need a mandated managed growth program. Yet such programs bring their own set of thorny, intractable problems once becoming law.
One problem with dairy price supports and the Milk Income Loss Contract (MILC) program is their cost. Taxpayers will likely spend hundreds of millions in support payments and upwards of $1 billion in MILC payments this year. With the government now facing a $9 trillion debt over the next decade, spending on dairy programs is far more likely to decrease than to go up.
An intriguing possibility that has received far too little discussion is Livestock Gross Margin Insurance for Dairy (LGM-Dairy). A Penn State University analysis shows LGM-Dairy has real potential to provide better margins if used consistently to protect against risk.
Yes, this program is complicated and, at times, expensive. But it surely could be streamlined, and some of the dollars being poured into existing dairy programs used to subsidize premiums—at least initially.
The benefits are twofold: Producers can protect income over feed price, rather than just milk price, and buy insurance to meet their individual needs. This is a far better approach than national, one-size-doesn't-fit-all programs.
More on Dairy-Livestock gross margin insurance:
Comparison of the Dairy Livestock Gross Margin Program and Standard Risk Management Approaches
USDA-Frequently Asked Questions
USDA-2010 Livestock Gross Margin papers