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Weekly Digest: Dairy-RP indemnity payments beginning

Progressive Dairyman Editor Dave Natzke Published on 14 May 2019

Digest Highlights

Dairy-RP indemnity payments beginning

Some dairy producers who protected milk revenue under the Dairy Revenue Protection (Dairy-RP) during the first quarter of 2019 are beginning to receive indemnity payments. Through May 13, 123 claimants received indemnity payments totaling $4.46 million.

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Based on initial data, only producers protecting milk revenue at the maximum (95 percent) level qualify for indemnity payments under the revenue insurance program.

The USDA Risk Management Agency (RMA) does not report indemnity payment totals until payment documentation is reported, and final Dairy-RP claims and indemnity payments for the first quarter of 2019 may not be available until August.

The RMA also does not provide quarterly data on the number of endorsements purchased or the pounds of milk or milk revenue covered in a single quarter, so the policies receiving indemnity payments as a percentage of endorsements purchased can’t be determined.

Under Dairy-RP, the first quarter of 2019 ended on March 31, and the RMA calculated milk class and component prices and milk volumes used in revenue settlements on about April 22. After the prices and volumes were announced, approved insurance providers (AIPs) then had 10 days to notify their Dairy-RP clients if they were eligible for indemnity payments, based on the coverage selected.

Within 60 days, producers must then provide the AIPs with actual milk production figures for the quarter, and the AIPs then have 30 days to make indemnity payments. So based on that schedule, a dairy farmer who purchased Dairy-RP coverage for the first quarter of 2019, and was eligible to receive an indemnity payment, should see a check by about July 30, depending on how promptly the required documents have been completed.

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Dairy-RP did reach another milestone in May. Based on data as of May 13, the revenue on about 25.5 billion pounds of milk was covered during the 2019 crop insurance year. Of that, 23.8 billion was covered at the 95 percent level. That represents more than 93 percent of all milk covered under Dairy-RP since the program was launched on Oct. 9, 2018.

Dairy-RP quarterly endorsements are available for sale until about the 15th of the month preceding the quarter to be covered. Producers can now purchase quarterly endorsements for July-September 2019 (until June 15), October-December 2019 (until Sept. 15), January-March 2020 (until Dec. 15), April-June 2020 and July-September 2020.

There are small changes coming to Dairy-RP when the 2020 crop insurance year begins July 1, 2019.

Interest rate movement mixed

The Federal Reserve board’s pause on interest rate hikes has slowed the pace of agricultural loan interest rate increases in some banking districts. And lender surveys from Chicago, Dallas, Kansas City and St. Louis Federal Reserve districts showed interest rates in some cases had declined from the previous quarter. Average interest rates as of April 1 (Table 1), by district:

051419 natzke interest rates

• Kansas City: Districtwide, average interest rates on all types of agricultural loans increased at a moderate pace in the first quarter. However, within the district, changes were mixed. For example, interest on fixed real estate loans declined in Oklahoma but still remained the highest in the district. Changes in interest on fixed- and variable-rate operating and intermediate loans also varied by state.

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• Dallas: First-quarter 2019 interest rates on variable-rate loans are now the highest since 2008, led by feeder cattle and operating loans. Interest rates on fixed-rate loans are the highest since 2009-10, topped by operating loans moving above 7 percent, rates on intermediate and real estate loans were the highest since the middle of 2011. Loan volume fell across all major categories compared with a year ago, with the sharpest declines in dairy, farm machinery and farm real estate loans. The credit standards index rose to a two-year high.

• St. Louis: Interest rates on all six of the fixed- and variable-rate loan categories rose. Interest rates increased the most for fixed- and variable-rate machinery/intermediate-term loans and variable-rate farm real estate. The interest rate on fixed-rate farm real estate loans was up just one basis point to 6.16 percent. Across all categories, fixed-rate loans increased an average of 8 basis points in the first quarter, while variable-rate loans increased an average of 11 basis points.

Thirty-five percent of bankers reported that less than one-fourth of their customers had borrowed up to their loan limit. However, a slightly smaller percentage of bankers (31 percent) reported that more than half of their customers had borrowed up to their loan limit.

• Chicago: As of April 1, 2019, the average interest rates for variable farm operating, feeder cattle and real estate loans moved down slightly from eight-year peaks set at the start of the year. However, after being adjusted for inflation, average agricultural interest rates moved up to their highest levels since the fourth quarter of 2015.

District credit tightening also continued in the first quarter of 2019: Twenty-eight percent of ag lender survey respondents noted that their banks required larger amounts of collateral for loans relative to the same period of 2018, while none noted that their banks required smaller amounts. Additionally, the share of loans guaranteed by the USDA’s Farm Service Agency (FSA) in the portfolios of the reporting banks rose slightly to 8 percent. In Wisconsin, that share was 17 percent, reflecting the difficulties the dairy sector has faced.

• Minneapolis: April updates on interest rates were not available.

Beef, dairy collaboration launches HOLSim program

The American Simmental Association (ASA) and Holstein Association USA (HAUSA) have formed the HOLSim-branded program. The program identifies elite SimAngus bulls with specific production attributes for dairy producers who breed some of their herd to beef.

The program’s objective is threefold: to provide additional revenue to dairy producers through the production of value-added terminal calves, to offer new marketing avenues for progressive beef seedstock operations and to offer a consistent supply of high-quality calves better situated to capture market premiums.

All bulls in the program will be required to include the HOLSim logo in all marketing and promotional material. The HOLSim Index uses the IGS Feeder Profit Calculator (FPC) as the foundation for this effort.

The program is underpinned by HAUSA’s animal identification program. To qualify for the program, all animals must have a registered Holstein dam and be bred to SimAngus bulls identified through the IGS Feeder Profit Calculator.

Email Darin Johnson, or phone (802) 451-4048 for more information.

New publication provides snapshot of LLCs for Midwest farming businesses

A new National Agricultural Law Research publication examines limited liability company (LLC) statutes in the Midwest and explores the usefulness of LLCs for farming families and businesses. The publication, “A Snapshot of LLCs and Farming: How Farm Businesses have implemented the Limited Liability Company Structure in the Midwestern United States,” was authored by two members of the Ohio State University Agricultural & Resource Law Program, Evin Bachelor, law fellow, and Peggy Kirk Hall, director.

While noting LLCs cannot cure all of a farm’s troubles, it can help mitigate liability risks, provide tax options, reduce administrative and paperwork burdens relative to a corporation, and keep the farm in the family.

When comparing LLC statutes in 12 Midwest states, they found six (Iowa, Illinois, Minnesota, Nebraska, North Dakota and South Dakota) have adopted a uniform statute. Even in the other six states that have not adopted the uniform statute (Indiana, Kansas, Michigan, Missouri, Ohio and Wisconsin), the key elements are very similar. The statutes have filing procedures for creating the entity, default rules for operating agreements and rules that govern LLCs in general.

The authors found LLCs offer three commonly known benefits of LLCs: liability protection, tax benefits and flexibility in creating an entity that may be adapted to suit the needs of a business or family.

However, they also found a benefit less thoroughly discussed but potentially the most useful: The flexible nature of an LLC operating agreement provides benefits in estate and transition planning. How can LLCs be helpful in an estate and business transition plan for a farm? Here are a few ways:

  • Restrict the transfer of an ownership interest through rights of first refusal and buy-out provisions
  • Restrict membership and voting power of nonfamily members
  • Transition equity ownership more easily than in a corporation
  • Transition the business in relative privacy

Using data from the USDA’s Census of Agriculture, the authors found that by 2012, there were almost as many farms organized as LLCs as there were farms organized as corporations, while the vast majority of farms remained owned outright by individuals with no formal legal entity. Because 2012 was the first year that farms were asked to identify whether they were organized as LLCs, the authors are studying results of the 2017 Census of Agriculture to identify any trends.

FFAR grant funds dairy cow heat stress research

The Foundation for Food and Agriculture Research (FFAR) awarded a $736,392 Seeding Solutions Grant to Cornell University to improve dairy cows’ ability to withstand extreme heat. The FFAR grant is matched with funding from AB Vista, Adisseo, Balchem Corporation, Berg + Schmidt, Elanco, Phibro Animal Health and Vetagro S.p.A. for a total $1.47 million investment.

Researchers will start by understanding the relationship between dairy cattle’s gut health, intestinal permeability, liver health, immunity and milk production. Working with industry, Cornell’s Joseph McFadden, assistant professor of cattle biology, will determine whether heat-stressed dairy cows can recover if fed specific remedies. Ultimately, this project aims to identify nutrition-based solutions that improve dairy cows’ ability to adapt to extreme heat. McFadden’s team will further partner with industry collaborators to reduce the use of limited natural resources and drive down dairy production costs in support of a more sustainable and economically viable American dairy industry.

Cargill conducts voluntary recall of select Southern States feed products due to aflatoxin levels

Cargill’s animal nutrition business is conducting a voluntary recall of select Southern States feed due to aflatoxin levels that exceed the FDA's action levels.

Dairy and beef feed products subject to recall include: Southern States Calf Developer Plus, Southern States Intensity 22 percent Calf Starter, Southern States Genetic Expression 14 percent Jump Start and Southern States Coarse Screened Cracked Corn. To view the label for each product, click here.

End users who have any of the affected lots in their possession should return remaining product to their local dealer or retailer for a replacement or full refund.

The affected products, which were manufactured at Cargill’s facility at Cleveland, North Carolina, were sold in the eastern U.S. Cargill first learned of the issue when it received a notification from the North Carolina Department of Agriculture of test results showing that a single lot of a specific Southern States product contained elevated levels of aflatoxin.

All affected products were removed from retail shelves throughout February, March and April 2019. Cargill has identified and corrected the root cause.

No adverse health effects to animals have been reported to date.

Aflatoxicosis has the same acute and chronic adverse effects and health consequences across all species and age classes (immature and mature). Immature animals are more sensitive to aflatoxins. Acute aflatoxicosis may result in generalized hemorrhage, bloody diarrhea and death in one to three days. In addition, aflatoxin toxicity can cause reduced feed intake, reduced weight gain, liver damage, jaundice and, eventually, death.  end mark

Dave Natzke
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