January 28, 2014 — We are finally well on our way to having a Farm Bill. The Conference Committee bill language has been circulated which shows us what the Dairy Title will include. It is possible that between now and the President’s signature on the legislation, that items could change, but that is not likely at this point, according to Mark Stephenson, Director of Dairy Policy Analysis at the University of Wisconsin, Madison. Here’s his synopsis:
In broad brush strokes, the dairy provisions would create margin insurance for producers. This insurance would be available to protect between a $4.00 to $8.00 milk-feed price margin in 50¢ increments. Producers will have a “production history” which is the highest annual milk production in the 2011, 2012, or 2013 calendar years. There are also provisions for new entrants into dairying. This individual production history will grow by the U.S. average production growth in subsequent years. So, producers who expand significantly beyond average U.S. growth will not be able to protect the additional milk production under this program. Beyond that, there is no significant penalty except the potentially lower market price for the additional milk sales. I.e., there is no market stabilization in the program.
There are two tiers of pricing for premiums. The first 4 million pounds of milk sold annually will have significantly lower premiums than milk production above 4 million pounds. The $4.00 margin coverage level is available at no cost but the premiums become increasingly expensive and particularly so above $6.50 (the highest cost premium is for production history above 4 million pounds at an $8.00 coverage and would cost $1.36 per cwt.). Additionally, premiums below the $8.00 level will be discounted by 25% for the first two years of the program (2014 & 2015) for the first 4 million pounds of production history.
Coverage < 4 million > 4 million
$4.00 None None
$4.50 $0.01 $0.02
$5.00 $0.03 $0.04
$5.50 $0.04 $0.10
$6.00 $0.06 $0.16
$6.50 $0.09 $0.29
$7.00 $0.22 $0.83
$7.50 $0.30 $1.06
$8.00 $0.48 $1.36
There will also be a flat administrative fee of $100 paid annually for registered producers over the life of the bill. However, producers can change coverage percentage and level decisions annually.