Dairy Financial Times: Dairy Security Act
By Gary Genske
If enacted, the Dairy Security Act, or HR 3062, introduced by Congressmen Peterson and Simpson, will among other things, reform dairy pricing for at least five years. The three major components of the HR 3062 Bill, are:
1) Margin Protection (insurance).
2) Market Stabilization (production control-base).
3) Federal Milk Market Order Reform (price discovery).
The “Margin Protection” section of the bill remains the most complex and misunderstood part of the bill. When dairymen are being asked to support a new five-year pricing policy, we should study it to decide if it is what we need, as an industry, for our sustainability.
Nowhere, until now, is there an example of how this complex part of the bill will work! Instead of offering a better price structure, the bill offers insurance options.
By changing a few numbers, the following illustration can be used as a template to determine what the outcome of the “Margin Protection Insurance” can provide to producers, using a variety of different milk and feed pricing scenarios. Then one can decide if this proposal is an adequate substitute for responsible pricing reform.
The illustration at right, was prepared using milk and feed prices announced by the USDA National Ag Statistics Service monthly reports for January and February 2012
This all results in a net benefit of $.67 per cwt. to the dairy farmers, if enrolled in the “Margin Protection Program.” However, there could be a material reduction to this $.67 payment! If enrolled in the “Margin Protection Program,” a dairyman would automatically be subjected to assessments that can be levied under the “Market Stabilization” (production control) part of this proposed bill!
The answer to the question: “Is this Dairy Security Act bill proposal a viable option for dairy sustainability for at least the next five years?” is not the same for all dairy producers. Simply ask yourself, “is a $.67 (or less) per cwt. payment to you for January enough to make you profitable or would it reduce your loss?”
Since we work for dairy farmers in 30 states who produce 12% of the nation’s milk, we are uniquely qualified to report that the $.67/cwt payment would only reduce the average dairy loss across the country.
What was needed for January’s pay price, was an additional $3 to $4 per cwt. (40 cents a gallon), not a $.67 insurance payment. We producers deserve better reforms and at least a chance for profit.
• Gary Genske, CPA, and managing partner with, Genske, Mulder & Co., LLP, a certified public accounting firm in Costa Mesa, Calif., representing clients who produce 12% of the nation’s milk in 30 states. He can be reached at 949-650-9580 or firstname.lastname@example.org.