Senate Ag Committee dairy title, Dairy Security Act impacts compared

New analysis comparing the dairy title of the Senate Ag Committee’s 2012 Farm Bill proposal with the Dairy Security Act, introduced in the House of Representatives, has been completed by dairy economists Mark Stephenson-Madison, and Andrew Novakovic, Cornell University. 

According to the authors, one difference between the House and Senate versions is that the Dairy Production Margin Protection Program (DPMPP) has two tiers of pricing in the Senate version. Tier 1, for the first 4 million lbs. of annual production (approximately a 250-cow farm), sets premiums at a significantly lower price. The much higher prices in Tier 2 apply to a farm’s marketings above 4 million lbs. This change has very significant implications for the cost of margin insurance on farms that are well above the 4 million lbs. per year break point.

 

A second change affects the cost and benefit of the margin insurance plan for all farmers. The Senate formula for calculating feed ration costs was changed by lowering the feed parameters to 90% of the DSA levels. This seemingly small change increases the value of the margin calculation by a bit more than $1/cwt. when feed prices are at levels that have prevailed over the last four years.

 

The change in the ration calculation, and thus the margin, has two impacts, according to the summary. One is that to actually provide the same approximate level of DPMPP coverage, a producer now needs to buy an additional $1/cwt. worth of supplemental coverage when compared to the DSA. A $6 margin using the House formula is equivalent to a $7 margin under the Senate formula. This means that if a farmer wants to protect against the kind of low that occurred in 2006, he would need $7.50/cwt. coverage, not $6.50/cwt. coverage, and pay a considerably higher premium to get it.

 

In 2009, the House formula would have provided two more months of coverage at the $4/cwt. level.

 

The second, and somewhat offsetting impact, is that the larger margin calculation does not trigger the Dairy Market Stabilization Program (DMSP) as often. It is $1 harder to hit the $6 2-month trigger or $4 1-month trigger.

 

Different from the DSA, the Senate version also allows producers to make annual decisions on the level of supplemental insurance, and what had been an optional growth provision in the historic production base of the DSA is now an automatically updated annual production history.

 

The paper is titled, “Dairy Provisions of the Senate Agriculture Reform, Food, and Jobs Act of 2012 — An Estimation of Farm-Level Impacts. Find it at http://dairy.wisc.edu/PubPod/Pubs/BP12-05.pdf.