Milk prices secured with more paperwork
WASHINGTON — The 2014 Farm Bill has a number of provisions intended to protect dairy farmers from price volatility. But with the milk industry enjoying a historic boom, the law’s major protections won’t be activated unless markets dip dramatically.
“We had the highest all-time milk price in April and May that we have ever had,” said Bob Parsons, an agricultural economist who teaches at the University of Vermont. “Milk prices and feed prices are such that these Farm Bill programs aren’t going to kick in for a while.”
The major Farm Bill provision focuses on dairy pricing. The Dairy Margin Protection Program allocates federal subsidies for farmers when milk prices drop or production prices skyrocket.
In the program, all farms will receive federal assistance for virtually no cost should their profits drop to catastrophic levels.
But the program also offers more comprehensive coverage at a cost. Farmers can decide what percentage of their herd they want to insure as well as the level of insurance.
The minimum profit margin, defined as the price received for milk minus the cost of feed, can be insured at $4 to $8 per hundredweight. If a farmer makes less than $8 profit per hundredweight, for example, the program makes up the difference.
Farmers can modify their insurance plans on a yearly basis.
In the final hours of Farm Bill negotiations earlier this year, Sen. Patrick Leahy, D-Vt., secured a provision under which small-scale farmers have lower premiums than industrial operations. Any farm with 200 cows or fewer qualifies for the cheaper rates.
The average herd size in Vermont is about 130 cows.
“The average Vermont farm is going to have very good coverage at minimal cost,” Parsons said.
The 2014 program replaces the Milk Income Loss Contract (MILC) safety net, a simpler supplemental program with fewer insurance options.
“The new program is going to take a little more work,” said Jenny Nelson, agriculture policy adviser to Sen. Bernard Sanders, I-Vt.
“With MILC, farmers got set payments determined by production. But now there are so many insurance premium levels, so farmers will definitely be pushing pencils.”
Another program in the 2014 Farm Bill, called the Dairy Product Donation Program, will protect farmers should milk demand fall drastically.
The program directs the agriculture secretary to purchase dairy products when farmers’ profit margins shrink beyond a certain level for two consecutive months. The milk purchased by the government would be donated to food banks and other charities that help the poor.
Rep. Peter Welch, D-Vt., sponsored a Farm Bill provision in the House targeted at stabilizing dairy production, but it ended up being cut from the final draft. Leahy led the charge for the stabilization plan in the Senate.
“The program would have let farmers respond to price signals in the same way Apple Computers does,” Welch said in an interview. “If they are selling more iPods, they produce more. If they see sales decline, they don’t produce as many. There was steadfast opposition from Speaker (John) Boehner; that’s what took it down.”
All the intricacies of the Farm Bill’s dairy provisions are to be released Sept. 1 by the U.S. Department of Agriculture. The MILC program will also end in September.
The University of Vermont’s Extension program has been granted $10,000 to educate farmers about their new duties under the Dairy Margin Protection Program.
Online tools are also being developed by a number of universities to help farmers manage their finances around the new program. A Web application will allow farmers to plug in variables like operating costs and herd size to determine whether expansion is wise and what insurance tier fits best, among other things.
“It’s not the first thing on farmers minds, because the milk prices are so good right now,” Nelson said. “But once UVM announces meetings, then farmers will perk up.”
The historically high milk prices can be explained by a few factors. The Eastern corn belt has seen heavy rainfall, which has produced a record harvest and cheap feed prices, Parsons said. Farmers are also exporting 16 percent of produced dairy, a record amount.
“Dairy prices never stay high forever, and there is likely to be more volatility since the House leadership refused to accept the market stabilization language in the Senate’s bill,” Leahy said in a statement.
“Farmers should keep in mind the price shocks of the not-so-distant past,” he said, “and consider participating in the margin protection program as soon as it becomes available.”
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