(An attempt at a) Summary: Senate Ag Committee Farm Bill dairy title
By Dave Natzke
The 900-page draft farm bill language released April 20, by the Senate Agriculture Committee includes 43 pages (pages 68-111) devoted to federal dairy policy reforms. Markup of the bill is scheduled for April 25.
The current Farm Bill is set to expire Sept. 30, 2012. If approved and signed into law, the draft language contained in the Senate Ag Committee 2012 Farm Bill would make many of the dairy provisions effective Oct. 1, 2012, or 120 days after it is signed into law. It would expire Dec. 31, 2017.
DairyBusiness Communications read through the draft dairy language, provided by Senate Ag Committee chair Sen. Debbie Stabenow (D-Mich.) and ranking member Sen. Pat Roberts (R-Kan.). The dairy title of the bill primarily describes the structure and implementation of programs, the key components of which are contained in the Dairy Security Act (H.R. 3062) and the Foundation for the Future dairy policy reform, developed by National Milk Producers Federation (NMPF).
First, here is a summary of proposed language for other provisions of the dairy title:
Federal order reform
The bill does not reform the federal milk marketing order system, leaving potential reforms and the process up to USDA.
Continuing other dairy programs
The bill changes the expiration date of several existing programs from 2012 to 2017, including the Dairy Forward Pricing Program, Dairy Indemnity Program, and the Dairy Promotion and Research Program.
Dairy Product Price Support Program
The bill repeals the Dairy Product Price Support Program, effective when the 2012 Farm Bill becomes law.
Dairy Export Incentive Program
The bill repeals the Dairy Product Price Support Program, effective when the 2012 Farm Bill becomes law.
Milk Income Loss Contract (MILC) Program
Currently, MILC is set to expire Sept. 30, 2012. However, this bill sets an expiration date of June 30, 2013, and incorporates MILC into a "transition period” while other programs are implemented. During the transition period, dairy farmers would have the option of participating in MILC, or switch to the Dairy Production Margin Protection Program (see below).
Now, on to the summary of proposed language for the major provisions of the dairy title:
Dairy Production Margin Protection Program (DPMPP)
DPMPP would begin Oct. 1, 2012 or no later than 120 days after it is signed into law. Within 30 days of adoption, USDA must inform dairy producers (through the Federal Register) within 30 days of the availability of basic and supplemental dairy production margin insurance protection.
Program sign-up: During a transition period, dairy producers could elect to participate in either MILC or DPMPP, switching to DPMPP any time during the transition period. MILC would expire June 30, 2103.
There would be an initial 15-month sign-up period for DPMPP. Any new dairies created after initiation of the program must sign up within 1 year of starting to market milk commercially. All dairies are eligible to sign up for the base margin protection program, as well as purchasing supplemental margin insurance coverage.
Administration fee: While the base margin protection program would not require insurance premiums for individual producers, an annual administration fee is required to participate in DPMPP, based on annual milk production levels. The fee scale is:
• < 1 million lbs. – $100
• 1-5 million lbs – $250
• 5 million-10 million lbs. – $350
• 10 million-40 million lbs. – $1,000
> 40 million lbs. – $2,500
Under the bill, USDA may grant an administration fee waiver or reduction in the case of a "limited-resource” dairy operation.
Margin calculation: The actual dairy production margin is the difference between the monthly all-milk price ($/cwt.) and the average feed cost to produce a hundredweight of milk.
USDA currently provides a preliminary all-milk price, as well as preliminary corn, soybean and alfalfa hay prices, in its monthly Ag Prices report, usually issued the last business day of the month (for example, April 30 for April prices). The preliminary calculations are based roughly on the first 15 days of the current month. Then, a month later (May 31 for April average prices), USDA announces "final" milk and feed price average. The "final" prices would determine margins.
The feed cost formula is:
• Multiplying the national average corn price/bushel by 1.0728
• Multiplying the average soybean meal price/ton by 0.00735
• Multiplying the average price of alfalfa hay/ton by 0.0137
Base DPMPP production history: Basic production history is equal to the highest annual milk marketings of the dairy operation during any one of three calendar years immediately preceding the calendar year in which the dairy operation first signed up to participate in DPMPP.
If a dairy has been in operation for less than a year, the operation may determine its base by: • using actual volumes of milk marketings for the months the operation has been in operation, extrapolated to an annual amount
• estimate the actual marketings of the dairy operation based on herd size relative to the national rolling herd average.
Once established, no changes can be made to the base production history.
Supplemental DPMPP production history
Existing dairies must provide actual marketings for the preceding calendar year. Dairies started after implementation of the program must provide any existing production history.
Dairy operations moving to a different location may transfer base. The base for dairies sold or leased may be transferred (but not changed) to the new owner. An operator occupying a vacated dairy has no base and is considered a new dairy (the base is with the herd, not the building/facilities)
Base margin payments
Base margin insurance payments will be made when the margins for a consecutive 2-month period are less than $4.00/cwt. The payment will be the difference between $4/cwt. and the actual margin.
If the difference is more than $4/cwt. USDA will use $4/cwt. Payments will be made on the lesser of 80% of the annual production history of the dairy operation, divided by 6; or the actual quantity of milk marketed during the consecutive 2-month period.
Supplemental margin premiums
The producer may purchase supplemental production margin protection in increments of 50¢/cwt., up to but not exceeding $8/cwt. Premiums are determined by the level of desired protection ($/cwt. and percentage/annual volume of milk covered). Supplemental coverage can be purchased to cover not less than 25% and not more than 90% of annual production history.
The supplemental margin premiums rise for coverage above 4 million lbs. of milk annually.
The premium scale is:
Desired Premium per cwt.
margin first 4 million lbs. annually > 4 million lbs. annually
$4.50 1¢ 2¢
$5.00 2¢ 4¢
$5.50 3.5¢ 10¢
$6.00 4.5¢ 15¢
$6.50 9¢ 29¢
$7.00 40¢ 62¢
$7.50 60¢ 83¢
$8.00 95¢ $1.06
Annual supplemental insurance premiums may be waived in the event of a death, retirement of permanent dissolution of a dairy operation, or other circumstances considered appropriate by USDA.
A dairy that fails to pay the supplemental coverage premium (or is in arrears of the payment) will not receive an insurance payment until fees are paid in full.
Supplemental margin payments: Supplemental margin payments will be made in addition to the base payments. As with base protection, supplemental insurance payments will made when the calculated margin falls below the selected coverage margin in a consecutive 2-month period. Payments will be made on the percentage of milk selected for supplemental coverage; and the lesser of the annual production history of the dairy operation, divided by 6; or the actual quantity of milk marketed during the consecutive 2-month period.
Dairy Market Stabilization Program (DMSP)
To manage supply and demand, each dairy operation which signs up for DPMPP must also establish an annual production base.
Establishing base: Each dairy may determine how it wants its base history established. A grace period – determined by USDA – allows a dairy to change the way it wants its base determined.
The dairy may select a base determined by:
• the average monthly milk marketings for the three months immediately preceding the start of DMSP.
• the volume of milk for the same month in the preceding year.
USDA will develop a process to collect monthly milk marketing information for participating dairy operations and handlers.
DMSP triggers: DMSP production controls are initiated by USDA when:
• the actual dairy production margin has been $6.00 or less/cwt. for each of the immediately preceding 2 months; or
• the actual dairy production margin has been $4.00 or less /cwt. for the immediately preceding month.
When triggered, reductions in milk payments commence on the first day of the month immediately following the date of the announcement by USDA. Payments are reduced for any dairy operation that exceeds the applicable percentage of the dairy operations’s DMSP base.
DMSP payment reductions: During any month in which payment reduction are in effect under DMSP, each milk handler will reduce payments to each participating dairy operation, based on the actual margin. If the margin is:
• less than $6/cwt. but greater than $5.00/cwt. for 2 consecutive months, participating farmers will be paid for 98% of their monthly base or 94% of the month’s actual milk marketings, whichever is greater.
• less than $5 but more than $4/cwt. for 2 consecutive months, participating farmers will be paid for 97% of their monthly base or 93% of actual monthly milk marketing, whichever is greater.
• less than $4/cwt. for any 1 month, participating farmers will be paid for 96% of their base or 92% of actual monthly milk marketings, whichever is greater.
There will be no payment reduction if the dairy operation’s monthly milk marketings are less than the percentage of stabilization base. Payment reduction continue until USDA suspends the program due to improving margin conditions.
Milk payment deductions will be suspended if:
• the actual dairy production margin is greater than $6/cwt. for 2 consecutive months
• the actual margin is >$5 cwt. but less or equal to $6/cwt. for 2 consecutive months, and during the 2-month period the U.S. cheddar cheese price is equal to or greater than the world price (or)
the price of U.S. nonfat dry milk is equal to or greater than the world skim milk powder price.
• the actual dairy production margin is equal to or less than $5 (but greater than $4 for two consecutive months and during the 2-month period the price of U.S. cheddar cheese is more than 5% above the world price (or) the price of U.S. nonfat dry milk powder is more than 5% above the world price of skim milk powder'
• the actual dairy production margin is equal to or less than $4 for two consecutive months and during the 2-month period the price of U.S. cheddar cheese is more than 7% above the world price (or) the price of U.S. nonfat dry milk powder is more than 7% above the world price of skim milk powder.
Once suspended, the DMSP cannot be resumed for 2 months.
The milk handler sends money deducted from the producer's check to USDA.
Collected funds will be used to purchase commodities for donation to food banks; or use the funds for programs to expand dairy consumption/demand for dairy products. Any programs designed to increase consumption/demand must not duplicate programs administered under dairy promotion and research activities, and USDA must file an annual report to Senate/House Ag Committees regarding accounting and use of those funds for the preceding year.
Enforcement: The program would be administered and enforced by USDA, with an appeals process. USDA will conduct periodic audits of dairy operations and handlers. Violations could make producers ineligible for margin insurance for up to 5 years. Willful violation could subject the dairy to a court case. Handlers failing to submit funds will be responsible for the money, plus interest.
Dairy producers could participate in either the DPMPP or the USDA Risk Management Agency Livestock Gross Margin-Dairy (LGM-Dairy) margin insurance program, but not both.
Senate Ag Committee 2012 Farm Bill draft dairy title
Download the Senate Ag Committee draft farm bill language released April 20. The dairy title covers 43 pages (pages 68-111):
PART I—DAIRY PRODUCTION MARGIN PROTECTION AND DAIRY MARKET
Sec. 1401. Definitions.
Sec. 1402. Calculation of average feed cost and actual dairy production margins.
SUBPART A—DAIRY PRODUCTION MARGIN PROTECTION PROGRAM
Sec. 1411. Establishment of dairy production margin protection program.
Sec. 1412. Participation of dairy operations in production margin protection
Sec. 1413. Production history of participating dairy operations.
Sec. 1414. Basic production margin protection.
Sec. 1415. Supplemental production margin protection.
Sec. 1416. Effect of failure to pay participation fees or premiums.
SUBPART B—DAIRY MARKET STABILIZATION PROGRAM
Sec. 1431. Establishment of dairy market stabilization program.
Sec. 1432. Threshold for implementation and reduction in dairy payments.
Sec. 1433. Milk marketings information.
Sec. 1434. Calculation and collection of reduced dairy operation payments.
Sec. 1435. Remitting funds to the Secretary and use of funds.
Sec. 1436. Suspension of reduced payment requirement.
Sec. 1437. Enforcement.
Sec. 1438. Audit requirements.
Sec. 1451. Duration.
PART II—DAIRY MARKET TRANSPARENCY
Sec. 1461. Dairy product mandatory reporting.
Sec. 1462. Federal milk marketing order information.
PART III—REPEAL OR REAUTHORIZATION OF OTHER DAIRY-RELATED
Sec. 1471. Repeal of dairy product price support and milk income loss contract
Sec. 1472. Repeal of dairy export incentive program.
Sec. 1473. Extension of dairy forward pricing program.
Sec. 1474. Extension of dairy indemnity program.
Sec. 1475. Extension of dairy promotion and research program.
Sec. 1476. Extension of Federal Milk Marketing Order Review Commission.