What the National Milk Producers Federation (NMPF) describes as "a new and unique safety net program" is part of the dairy title on which Congress, as of midway in the final week of January, was poised to vote on after a two-year delay in approving a new Farm Bill.
The Dairy Producer Margin Protection Program, as it is being called, will provide dairy farmers with indemnity payments when actual dairy margins, based on milk prices and whole herd feed costs, fall below the margin that the dairy farmers can choose annually.
This program is designed to protect farm equity by guarding against destructively low margins, not to guarantee profits to individual dairy farms, the NMPF indicated in a statement on Tuesday of this week. To allow the U.S. Department of Agriculture time to put the new margin program into operation (no later than Sept. 1), the new legislation extends the current Milk Income Loss Contract to that date or until Sept. 1, after which it will be eliminated.
All dairy farms that pay a $100 annual administrative fee will be eligible to take part in the new program. Their first year coverage will be limited to their highest level of milk production during any of the past three years.
In subsequent years, an individual dairy operation's coverage will be limited to the national percent increases in milk production. Any increase beyond that by the individual dairy farm will not be covered.
The program will address dairy farm margins, not milk prices as such. Margins will be calculated monthly by the USDA by using national average for the all-milk price minus the costs of a ration for feeding an entire dairy farm enterprise.
In increments of five percent, dairy farmers will be able to obtain margin protection for 25-90 percent of their historical annual milk production. For premium rates that are to be fixed for five years (through 2018), they will be able to select margin protection coverage at 50 cent increments for between $4 and $8 per hundred of milk.
Different premium rates are set for operations with annual milk production of less than and more than 4 million pounds. At over 4 million pounds in annual milk marketings (typically herds with more than 180 cows), the premium rates start at 2 cents per hundred to protect a margin of $4.50 and increase to $1.36 to protect an $8 per hundred margin.
For the group under 4 million pounds (up to about 180 cows), the premiums start at 1 cent per hundred for a margin of $4.50 per hundred and increase to 47.5 cents to protect an $8 per hundred margin. One provision, except for the $8 margin, is that the premiums for this group will be reduced by 25 percent for calendar years 2014 and 2015.
An indemnity payment will be triggered when the dairy farm's chosen level of coverage falls below that margin for two consecutive months. If the overall national margin falls below $4 per hundred for two consecutive months, the USDA would be required to purchase dairy products for three consecutive months or until the margin again rises above $4.
Those products would be distributed immediately to food banks and other non-profit organizations that conduct feeding programs. Those recipients would not be allowed to sell the products in the commercial market.
Another provision of the legislation pertains to international dairy product prices. If the United States prices would exceed international prices by more than five percent, then the purchase program would stop.
With the authorization of the margin protection and dairy product donation programs, the new legislation will eliminate the existing dairy product price support and the dairy export incentive program — neither of which have been active in recent years. The NMPF described them as "outmoded and ineffective."
The new legislation renews the dairy checkoff program for promotion and research (15 cents per hundred contributed to either state or national organizations), the dairy indemnity program, and the dairy forward pricing program. All three of them would be extended through 2018.