MILC resurrected, but questions remain

By Dave Natzke

With the one-year extension of the Farm Bill, the Milk Income Loss Contract (MILC) program was resurrected from a three-month hiatus. The program originally expired with fiscal year 2012, on Sept. 30, 2012.


But, as of Jan. 2, while resumption of MILC is assured, several questions remain regarding its implementation and administration.


A last-minute amendment by Sen. Pat Leahy (D-Vt.) extended at the MILC program at pre-September 2012 level – 45% of the difference between the federal order Class I base price trigger for Boston, Mass. ($16.94/cwt.) and the actual Class I price, with adjustments made based on national average feed costs. The feed cost adjuster takes effect when the National Average Dairy Feed Ration Cost (calculated from the “entire month” prices published by the National Agricultural Statistics Service) is greater than $7.35/cwt.


Due to a higher Class I price, there was no MILC payment for September 2012. However, because of federal budget mandates, the MILC program payment formula was changed for the final month of the fiscal year 2012 program. The payment calculation was reduced, from 45% to 34% of the difference between the trigger price and the actual Class I base price. Also, the feed cost adjuster was raised to $9.50/cwt., and the annual milk production cap eligible for payments was reduced to 2.4 million lbs.


Leahy’s amendment reportedly puts the formula back to 45% of the trigger/actual price difference; keeps the feed cost adjuster at the lower $7.35/cwt. level; and annual payments are capped at 2.985 million lbs. of milk production, as they were pre-September 2012.


According to Bob Gray, with the Northeast Dairy Farmers Coalition, formulas used during September 2012 would have likely meant no MILC payments in fiscal year 2013 (October 2012-September 2013). However, under the language inserted by Leahy, FY ’13 MILC payments are more likely.


“Although the MILC program is not perfect, it will provide a safety net in 2013 if feed prices remain high and farm milk prices falter,” Gray said. 


University of Wisconsin-Madison dairy economist Brian Gould generated MILC payment forecasts program payments for the current fiscal year, based on milk and feed futures prices at the end of December, under the assumption that the extension will be made retroactive to Oct. 1, 2012. Those estimates calculate a small retroactive payment (2.37¢/cwt.) for October 2012, with payments resuming in February 2013 (see table).


MILC monthly payment forecast, fiscal year 2013

Month Target ($/cwt.) Forecast Mover ($/cwt.) Predicted MILC payment (¢/cwt.)
Oct. 12 16.02 18.88 2.37¢
Nov. 12 16.26 20.70 0.00¢
Dec. 12 16.33 21.39 0.00¢
Jan. 13 15.98 18.97 0.00¢
Feb. 13 15.91 17.91 39.48¢
Mar. 13 15.79 18.32 13.89¢
Apr. 13 15.78 18.19 19.69¢
May 13 15.79 18.30 14.91¢
June 13 15.77 18.35 11.38¢
July 13 15.75 18.51 2.99¢
Aug. 13 15.43 18.55 0.00¢
Sept. 13 15.11 18.61 0.00
*Oct. 13 14.95 18.52 0.00
*Nov. 13 14.80 18.39 0.00
*Dec. 13 14.69 18.30 0.00


* MILC program expired

Source: Brian Gould, professor, Department of Agricultural and Applied Economics, UW-Madison


A spreadsheet showing Gould’s estimated values, with regular updates, can also be found on the UW Understanding Dairy Markets website:


‘Start month’ impact?

With the potential for a small retroactive payment for last October (the first month of fiscal year 2013), it's unclear whether some larger producers, subject to the milk production cap, can declare a new “start month” for MILC payments. 


In the past, a producer’s previous "start month” was on file with FSA, and remained the same in the subsequent year, unless the producer did the proper paperwork to change months. There were no MILC payments made in October 2011, so it's likely few if any larger producers had October as a ”start month.” Presumably, those producers would have selected start months of July, August or June 2012, when payments were the highest.


However, once a payment to an individual producer had been initiated, “start months” could not be changed. If an October 2012 retroactive payment is made, would that impact the “start month” for some producers? Or, would those larger producers be eligible to declare a February 2013 MILC start month by Jan. 14, 2013?


DairyBusiness left messages with several state FSA offices and others regarding this question. Several said they were awaiting information and guidance.


“The agency is currently analyzing what is in the farm bill extension and what that means for the programs that were reauthorized and funded,” noted Bill Wehry, FSA executive director in Pennsylvania. “At this point, I don’t have any specific guidance or details on which formula will be used to determine payments or when the start date will be for the MILC program.”


Check back at this website later for updates. Also, contact your local USDA/Farm Service Agency office for further information.