December 24, 2018
The 2018 Farm Bill, which President Donald Trump signed into law Dec. 20, offers dairy farmers more coverage options and flexible tools for less money, according to U. S. House Agriculture Committee Ranking Member Collin Peterson, D-Minn., who pushed for the bill’s completion before the Christmas holiday.
“One of the most important pieces in [the farm] bill is the improvement it makes for our dairy farmers,” Peterson said in a statement. “The economic downturn in farm country is hitting dairy hardest of all. In Minnesota and in neighboring Wisconsin, an average of two dairies are going out of business every day. The provisions in this bill will provide expanded, affordable coverage options and more flexibility for dairy farmers.”
Here is a summary of the dairy provisions, provided from House Farm Bill conference report:
• Dairy Margin Coverage (DMC) replaces the previous Margin Protection Program (MPP). DMC provides more flexibility for operations of all sizes. USDA will collect and analyze new feed cost data that are used in figuring DMC.
• DMC allows operations to cover between 5% and 95% of their existing production history. Previously under MPP, producers could only cover between 25% and 90%.
• DMC allows operations cover margins between $4.00 and $9.50 in 50-cent increments for their first 5 million pounds of participating production. Previously under MPP, there were no options at $8.50, $9 or $9.50. Operations enrolling more than 5 million pounds can cover margins between $4 and $8. Operations choosing $8.50, $9 or $9.50 coverage in the first tier can choose any second coverage level in their second tier.
• The price of $8 coverage drops from $0.142 per hundredweight to 10 cents per cwt, provides affordable $8.50 to $9.50 options, and makes the price of $4.50 and $5 coverage uniform across tiers. It reduces the cost of $5 coverage for operations covering more than 5 million pounds by nearly 90%.
• DMC provides a 25% annual premium discount for any operation that signs up in 2019 and commits to maintaining its coverage decisions, including coverage level and covered production, through 2023. Any producer who receives this discount will be unable to change their coverage decisions at any time over the life of the bill. Operations electing to not commit to five-year decisions may continue to make annual coverage decisions but will be ineligible for this discount.
• Operations that participated in MPP during 2014-17 will be entitled to receive a repayment of a portion of premiums paid over that period as either a 50% direct refund or a 75% credit toward future DMC premiums.
• The restriction between Livestock Gross Margin Insurance (LGM) and Farm Service Agency dairy programs has been eliminated. Producers will be able to use DMC and LGM without restriction on the same milk.
• Operations that were locked out of the improved 2018 MPP due to LGM participation will be allowed to retroactively participate in MPP for the months in 2018 in which they were excluded.
• Operations can use DMC in combination with Dairy Revenue Protection (Dairy-RP) without restrictions. The current prohibition on using LGM and Dairy-RP on the same milk remains in place.
Solid $18 price floor
In mid-December, Marin Bozic, University of Minnesota agricultural economist, said it will take another month or two for USDA to promulgate implementing regulations. Thus, no deadlines have been announced yet for 2019 signup. Bozic encourages dairy farmers to learn about the new provisions.
“The new Dairy Margin Coverage program will offer dairy producers a solid milk price floor at about $18 per hundredweight at current feed prices,” he said. “Many producers who would otherwise be forced to exit the business will be able to stay on.”
He noted that some producers may hold out and not want to receive government assistance.
“Other than non-economic [e.g. religious, etc.] reasons, there are really no good arguments against participating in DMC at Tier 1 level and $9.50 per cwt,” he said. “I think 2019 and 2020 could potentially be rather challenging, with additional cheese production hitting the market just as foreign demand is choked by trade wars.”
Bozic concluded: “It is of paramount importance that producers devise a comprehensive risk management strategy, combining DMC for the first 5 million pounds, and then building on top of that with LGM or Dairy-RP, and CME, for those desiring a more aggressive and active risk protection approach.”
Additional dairy provisions
The 2018 Farm Bill also reauthorizes forward pricing, the Dairy Indemnity Program, and certain promotion and research authorities through 2023. It repeals the Dairy Product Donation Program and replaces it with the Milk Donation Program.
The new fluid milk donation program will make it easier for producers, processors and co-ops to donate fluid milk to food banks and other feeding organizations. Donated milk currently is treated as “other-use” milk in the federal orders, meaning that it has a lower value than fluid milk usually would. This program allows dairy organizations and feeding programs to jointly propose a plan for USDA to pay up to the difference between other-use and Class I milk, so there isn’t a disincentive to donate.
The donation program is funded at $9 million in 2019 and at $5 million in each of the following years.
And the bill authorizes $20 million to USDA to establish at least three regionally located dairy innovation centers to provide outreach and technical assistance, with the goals of diversifying dairy product markets to reduce risk, developing higher-value uses for dairy products, promoting business development that diversifies farmer income, building processing and marketing innovation, and encouraging the use of regional milk production.
Dec. 27 webinar
Learn more about the dairy provisions in the 2018 Farm Bill and how it may impact your farm by joining an online presentation Dec. 27, led by Marin Bozic, University of Minnesota assistant professor in the Department of Applied Economics.
The webinar begins at noon and is free.
Registration is required at bit.ly/DMC-2019-FarmBill.
The program will highlight and discuss the economic implications of five points:
• Margin Protection Program for Dairy Producers discontinued
• Dairy Margin Coverage program introduced
• Low premiums and coverage levels up to $9.50, with discounts for consistent use
• Partial rebate of net MPP premiums paid for 2015-18 period
• No more restrictions on combining crop insurance and Title I programs (LGM and DMC)
There will be time available at the end of the presentation for questions.
For more information, contact Jim Salfer, University of Minnesota Extension dairy educator, at [email protected] or 320-203-6093.
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