Will MILC Payments Go to Zero?
Sep 01, 2009
By Jim Dickrell
Oct. 1 marks the beginning of the 2009/2010 fiscal year for USDA programs, including the Milk Income Loss Contract (MILC) program.
So if you want to continue to receive MILC payments in October (or if you milk more than 150 cows and want to start whittling away at your 2009/2010 production cap), you need to visit your friendly Farm Service Agency office by Sept. 14. That’s the deadline to re-qualify for October payments.
How much is at stake is an open question. Projections by Cornell University economists, based on current futures prices for milk, corn and soybeans, show MILC payments plummeting from $1.24/cwt in September to 32¢/cwt in October and to virtually nothing by January.
If true, that’s actually very good news because it means cheese and powder prices, and therefore Class I prices in Boston, will rise above the magic $16.94 threshold (plus minor adjustments for feed prices) that trigger MILC payments.
USDA projects it will have pumped more than $1 billion in MILC payments into the U.S. dairy economy since February. During that time, MILC payments added about 15% to the all-milk price between February and July for producers with less than 150 cows.
One of the questions I have is how much USDA’s temporary increase in support prices in August, September and October will have on cheese and powder prices, and in turn, on MILC payments. At first glance, you’d think it would be significant.
Jim Dunn, an ag economist with Penn State, says the change in support prices was equivalent to raising Class III prices from $9.40/cwt to $11.14, and Class IV prices from $9.35/cwt to $10.38. Since Class I prices are driven by the “higher of” Class III or IV, you would think Class I prices should shoot up significantly based on those higher Class III prices.
But based on Cornell’s projections off futures prices, the MILC payment takes a major hit in October, down to 32¢/cwt, or 92¢ less than its projection for September MILC.
So are higher, temporary support prices to “blame” for the lower MILC payments? And why do the projections have them continue to decline into January, when the support prices will revert to July levels November 1.
Bob Cropp, dairy economist emeritus with the University of Wisconsin, says support prices have little to do with this fall’s falling MILC payments. “Market forces have increased cheese prices more than support prices,” he says. “Any effect support prices have had on MILC payments is rather small, maybe a dime, but certainly not 50¢.
“And with all the financial stress on dairy farms and cow numbers coming down, I really don’t see the Class I mover coming back down below $11.50,” he says.
Post-harvest feed price projections are also much lower, says Cornell economist Mark Stephenson. So the feed price adjustor used in the MILC calculation drops to nearly zero, and the only hurdle the Boston Class I price must clear is $16.94 later this year. With a $3.25/cwt location adjustment in Boston, the Class I mover only needs to reach $13.69 for MILC payments to zero out.
So should you visit your friendly Farm Service Agency clerk in the next 10 working days and sign up for MILC? If you produce less than 3 million lb. of milk annually, the answer is a definitive “yes” since you’ll qualify for all 12 months of next year’s program, regardless of payment rate.
If you milk more than 150 cows, the odds are pretty good that your highest payments will come in October, November and December, according to the Cornell projections. Get your government payments while you can.
—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at email@example.com.
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