The dairy policy rhetoric ratchets up this week amid tightening margins and rapidly expanding production. We’re in for a long, hot, nasty summer.
After nearly two years of discussion and argument on future dairy policy among dairy farmers and processors, the real debate that matters begins in Congress this week.
The Senate will begin mark-up of its version tomorrow, and the Dairy Security Act (DSA) of 2012 as we all know (and love or hate) it, will likely be tweaked. That’s almost a certainty on the House side, where Speaker John Boehner has been quoted as saying DSA is dead on arrival if it contains supply management provisions. The House of Representatives’ Agriculture Subcommittee on Livestock, Dairy and Poultry will hold hearings on dairy policy Thursday.
In dairy country, the rhetoric has already ratcheted up. A few weeks ago, the Dairy Business Association in Wisconsin claimed that had DSA already been in effect, dairy stabilization provisions would already be requiring participating producers to cut production or forfeit a portion of their milk checks due to low margins.
“Not true,” counters Jim Tillison, National Milk Producers Federation Senior Vice President of Marketing and Economic Research. “Based on the numbers as DSA is currently proposed, the dairy stabilization program would go into effect in May. But it’s also true producers would be receiving margin payments for the previous two months, depending on the level of supplemental margin insurance they signed up for.”
Dairy programs actually in place, the Milk Income Loss Contract
program (MILC) and Livestock Gross Margin-Dairy (LGM-Dairy), are currently sending real dollars to producers who have signed up for these programs. The MILC program is paying producers 39¢/cwt. for February milk production, the first time MILC payments
have been made since April 2010. Projections, based on current futures prices, are that MILC will make significant payments—$1/cwt. or more in June and July—through August.
LGM-Dairy is also paying indemnities, reports Ron Mortensen
, with Dairy Gross Margin, LLC. If producers had signed up for the insurance for January, February and March with zero deductible, the indemnity would be 81¢/cwt. less the 63¢ premium, netting 18¢/cwt.
And then there’s localized supply management.
Last week, California Dairies, Inc., issued a press release
that it might have to impose penalties for members who ship more than their assigned baseline limits. It has not done so since May 2009, but increasing milk volumes might necessitate the reactivation of the program.
Land O’Lakes has already activated its base plan in California, noting the huge increase in daily deliveries that is overwhelming processing capacity and the prohibitive cost of hauling surplus milk to other plants.
The point of all this is that Congress will be debating new dairy policy in the midst of tightening margins and rapidly expanding production. Note: February milk production was up 4.3%, March production was up another 4.2%.
Existing programs are attempting to deal with this conundrum. Opponents of DSA would like to gut supply management from the program. But that throws budget savings and control out the window as well.
Some are already girding for failure. Sen. Patrick Leahy, D-Vt.), Sen. Bernie Sanders, (Indep., Vt.) and Rep. Peter Welch (D-Vt.) introduced legislation
that would continue the MILC program at current levels until Sept. 30, 2013. (Current legislation expires Sept. 30, 2012. )
But in order to enact that legislation, the Vermont Congressional delegation will have to find offsetting budget savings. And that would be on top of the $3.32 billion in annual savings agriculture must contribute to budget reconciliation after the so-called “Super Committee” failed to reach agreement last fall.
No one can predict how any of this will turn out, of course. What is clear, given the tenor of the times and the debate so far, is that we’re in for a long, hot, nasty summer.