Will new insurance program short-change dairy farmers?
In advance of the former Margin Insurance Program, officials of Pro-Ag evaluated the program, and we tried to warn dairy farmers that the program was not going to come close in solving the dairy farmers’ financial situation.
While we never advised dairy farmers to go with the program, nor did we urge them not to go with it. Thousands of dairy farmers listened to Pro-Ag and others, and consequently, 50% of dairy farmers stayed out of the program. As we predicted, the program did turn out to be a near failure.
Now we are facing the beginning of a new insurance program that is supposedly geared to save the American dairy farmer. I will admit, that I have not examined the new insurance program with the same intensity that I did with the Margin Insurance Program. However, I have talked with some of the authorities that have the full knowledge of how the new program will work.
Most of the information seemed to center around a 5 million pound a year dairy farmer, and with the producer taking out a $9.50 per cwt. (hundredweight) protection. According to some elected officials in Congress, including Rep. Collin Peterson (D-MN), (and I really think Collin wants to save our remaining dairy farmers) are claiming a dairy farmer taking out the above method should be able to receive around $100,000 more than the cost of his premium. This appears to sound real good to a dairy farmer.
Congressman Peterson and others are right on regarding their remarks of $100,000. However, this is what I found out: Any dairy farmer making 5 million pounds of milk per year and taking out the $9.50 per cwt. protection will under current economic conditions, will receive $27,000 above the cost of his investment, or for five years, which comes to $135,000. Again, these figures are only based on current economic conditions, and these figures will change during the five years, up or down.
The catch is, these payments only cover feed costs of our dairy farmers! What about all other costs experienced by the dairy farmers? According to the figures from Economic Research Service (ERS, a division of the USDA), the cost of producing milk on an average dairy farm was $21.66 per cwt. in 2018. According to other officials in the USDA, the average dairy farmer in the United States in 2018 was underpaid nearly $5 per cwt. below their $21.66 cost, or that same dairy farmer was underpaid approximately $250,000.
But wait a minute. He will receive about $27,000 in payment each year, or his underpayment will be $223,000. How long can dairy farmers last with these losses?
With all due respect to members of Congress, it appears to me they have been misled one more time by this insurance program.
This is the reason why so many dairy farmers are being forced out of business. If you multiply the $223,000 by five years, this same producer will be short-changed over one million dollars. (Using current economic conditions). Is this what our Congress wants to happen to our dairy farmers?
Tewksbury is manager of Pro-Ag