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What happened? What’s next? - Dairy pandemic assistance: The devil is in the details

Progressive Dairy Editor Dave Natzke Published on 20 September 2021

In this column, Progressive Dairy summarizes issues in the news and attempts to describe how they might affect dairy farmers. This issue features a look at the USDA’s Pandemic Market Volatility Assistance Program (PMVAP) for dairy. Look for more extensive background and details at Progressive Dairy.

Items in this column are compiled from Progressive Dairy staff news sources. Send news items to Dave Natzke

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Pandemic Market Volatility Assistance Program (PMVAP)

What happened?

On Aug. 19, the USDA’s Agricultural Marketing Service released some details of a $350 million Pandemic Market Volatility Assistance Program (PMVAP). The program will provide payments to dairy farmers who received lower prices for milk due to market abnormalities caused by the COVID-19 pandemic that were directly related to changes in the Class I milk pricing formula implemented in 2019. The payments cover milk marketed during July-December 2020.

What’s next?

Additional details of the program were emerging at Progressive Dairy’s deadline in late August. The analysis below is based on information available on Aug. 26.

The program is being implemented relatively quickly. Federal Milk Marketing Orders (FMMOs) publish lists of handlers pooling milk each month and, according to the program outline, those milk handlers and dairy cooperatives whose producers are eligible to receive PMVAP payments were being notified the week of Aug. 23. The USDA will host an information webinar for eligible handlers and cooperatives who were required to indicate intentions to participate by Sept. 10 and sign program agreements.

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Within 30 days of signing an agreement and handler verification of dairy farmer adjusted gross incomes, the USDA will transfer monies to the participating handlers or cooperatives, which will then have 30 days to disburse monies to eligible dairy farmers.

Bottom line

The difference between actual and estimated Class I prices during that six-month period was dramatically impacted by changes to the Class I mover formula (Table 1).

FMMO Class 1 price differences

With the change to the “average of” Class I mover formula, FMMO Class I prices averaged about $3.43 per hundredweight (cwt) less than they would have under the previous “higher of” formula during the July-December 2020 period.

Payments will reimburse qualified dairy farmers for 80% of the revenue difference, per month, for Class I milk marketed during July through December 2020.

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While the USDA has earmarked $350 million for PMVAP payments, the emphasis on Class I utilization means dividing those dollars to FMMOs and eventually to individual dairy producers could vary widely.

The change to the Class I milk pricing formula had a greater overall negative impact on uniform prices paid to producers within FMMOs with heavy Class I utilization rates. Class I utilization across all FMMOs averaged about 32% in 2020. During the July-December 2020 period, Class I utilization ranged from lows of 20% to 23% in the Upper Midwest, California and Pacific Northwest FMMOs to highs of 68% to 87% in Appalachian, Florida and Southeast FMMOs.

Producers in those FMMOs with highest Class I utilization will see the highest payments, while those in FMMOs with a higher percentage of Class III and Class IV utilization will see lower payments.

According to FMMO data analysis by ever.ag and Blimling and Associates, when total payouts are averaged across all milk marketed through FMMOs during the July-December 2020 period, the average payment would be about 23 cents per cwt, with a high of $1.54 per cwt in the Florida FMMO to a low of just 4 cents per cwt in the California FMMO.

However, that doesn’t reflect what actual payments to individual producers will look like, since payments won’t be across all milk or to all producers. Those details are yet to come.

Beyond Class I utilization, PMVAP payments are affected by two payment caps. The first limits payments to 5 million pounds of annual milk production. Since the program covers July-December 2020, that essentially limits payments to 2.5 million pounds of milk. A second potential payment limitation is tied to each dairy farmer’s eligible 2020 adjusted gross income.

The FMMOs with a greater proportion of larger dairies are impacted by the PMVAP milk production caps, receiving smaller payments per cwt.

Regionally, according to the analysis by ever.ag and Blimling and Associates, about 39% of all milk in the eastern U.S. is not “capped out” under PMVAP. That compares to about 21% in the central U.S. and just 2.5% in the West.

With payment caps, the ever.ag and Blimling data estimated total payments through FMMOs to dairy farmers will actually be closer to $250 million. Of that total, about $160 million will go to dairy operations that do not hit production caps; about $90 million goes to farms hitting the cap.

Without payment caps, total payments through FMMOs would have been almost $596.8 million.

Program payments will be reported on the dairy farmer’s IRS 1099 Form issued by the handler or cooperative.

Education requirement

As part of the agreement, each participating handler or cooperative must provide and verify availability of educational materials (mailings, recorded online trainings, live virtual webinars and/or in-person meetings) to all producers by March 1, 2022. Education efforts may incorporate a wide range of milk marketing and risk management topics, including FMMOs, DMC and Dairy Revenue Protection (Dairy-RP) programs, dairy mandatory price reporting, the Chicago Mercantile Exchange, forward contracting and other relevant dairy topics.

RELATED ACTION

In addition to the PMVAP, the USDA was taking three other steps to help the dairy industry recover financially.

  • On Aug. 25, the USDA released details of the $400 Dairy Donation Program (DDP). Under the DDP, eligible dairy organizations will partner with non-profit feeding organizations that distribute food to individuals and families in need. Those partnerships may apply for and receive reimbursements to cover some expenses related to eligible dairy product donations. Costs reimbursed through the program include the cost of milk used to make the donated eligible dairy product and some of the manufacturing and transportation costs.

  • Details were not yet available on a $580 million supplemental Dairy Margin Coverage (DMC) program for small and medium farms.

  • Separate from pandemic assistance, the USDA is making changes to the DMC program’s feed cost calculations to recognize higher costs for dairy-quality alfalfa hay. Although the timeline is unclear, this feed cost change will be retroactive to January 2020 and is expected to provide additional payments of about $100 million to DMC participants in 2020 and 2021. The change will also be part of DMC through the life of the program, set to expire with the current farm bill in 2023. Full details will be provided when regulations are published in the coming weeks. Dairy farmers should wait until these details are available to contact their local USDA Service Center for more information. end mark
    Dave Natzke
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