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What’s in it for you: House 2018 Farm Bill proposal lays out dairy outline

Progressive Dairyman Editor Dave Natzke Published on 18 April 2018

Editor’s note: On April 18, the House Agriculture Committee approved the Agriculture and Nutrition Act of 2018 (aka the House version of the 2018 Farm Bill) on a straight party line vote. Twenty-six Republican ag committee members voted for the bill, with 20 Democrats voting against the proposal.

It’s anything but a done deal, but the House version of the 2018 Farm Bill outlines congressional efforts to address federal programs affecting the dairy industry.

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Released on April 12, dairy provisions of the proposal are addressed in “Subtitle D – Dairy Risk Management Program and other Dairy Programs” (pages 80-94 of the 641-page document).

As proposed, the House version of the 2018 Farm Bill makes additional changes to dairy safety net programs modified in a federal budget bill in February. (Read: Dairy safety net: Some help arrives, some questions remain.)

“Congress made important improvements to the dairy safety net earlier this year, but as we have said repeatedly, there is more that must be done in the upcoming farm bill,” said Jim Mulhern, National Milk Producers Federation (NMPF) president and CEO. “That need is particularly urgent given the ongoing economic distress facing America’s dairy farmers.”

MPP-Dairy gets a new name

One of the changes is cosmetic. It renames the Margin Protection Program for Dairy (MPP-Dairy) to the Dairy Risk Management Program (DRMP). It extends the program through 2023.

Changes to feed cost formula

Many changes follow modifications advocated by the NMPF. Among them, the proposal addresses the often-criticized formula used to determine feed costs when calculating milk income margins.

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It requires the USDA to evaluate (within 60 days of enactment) the accuracy of data used to evaluate the average cost of feed used by a dairy operation to produce a hundredweight of milk. Under the proposal, USDA is asked to compare (within one year of enactment) the cost of corn silage versus corn grain and to revise the monthly price survey reports (within 120 days of enactment) to include prices for high-quality alfalfa hay in the top five milk-producing states.

Premium levels adjusted

The proposal adjusts DRMP premium levels and adds coverage for $8.50 and $9 per hundredweight margin levels. Premium levels for Tier I (first 5 million pounds of annual milk production) are as follows ($ per hundredweight):

$4.00 – None

$4.50 – $0.002

$5.00 – $0.005

$5.50 – $0.008

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$6.00 – $0.010

$6.50 – $0.017

$7.00 – $0.041

$7.50 – $0.057

$8.00 – $0.090

$8.50 – $0.120

$9.00 – $0.170

The proposal eliminates the annual election of coverage levels and percentage of coverage, instead requiring producers to make elections that are binding through 2023. It eliminates the annual adjustments to production history, using milk marketings during the 2011, 2012 or 2013 calendar year for the life of the program.

One change allows producers to enroll between zero and 90 percent of their annual production, instead of the 25 to 90 percent range currently offered through MPP-Dairy.

The proposal would allow a dairy operation to participate in both the DRMP and the Livestock Gross Margin for Dairy (LGM-Dairy) program, but not on the same production. Under the 2014 Farm Bill, dairy producers are forbidden from participating in both programs.

Class I pricing formula changed; forward pricing program extended

The House proposal also addresses the formula used to determine current Federal Milk Marketing Order (FMMO) Class I prices. NMPF and the International Dairy Foods Association (IDFA), an organization representing about 525 U.S. dairy manufacturing and marketing companies, called for the change.

The change replaces the current monthly “higher of” Class III and Class IV milk prices used in calculations, instead setting the monthly beverage milk price equal to the simple average of the advanced Class III and IV milk prices, plus 74 cents per hundredweight. (Read: Could FMMO Class I price formula changes reduce risk, fluid milk slide?)

The proposal also reauthorizes the Dairy Forward Pricing Program through 2023. That program has been a divisive issue between NMPF and IDFA, but in a House farm bill hearing early last year, Michael Dykes, IDFA president and CEO, testified the program should be extended and expanded to help processors with risk management.

That voluntary program allows dairy processors to lock in long-term milk supplies with individual farmers or their cooperatives at a fixed price to reduce volatility. (Read: What’s in it for you? Dairy producer, processor groups outline policy priorities.)

Finally, the House proposal extends the Dairy Indemnity Program and the National Dairy Promotion and Research Program through 2023, but repeals the Dairy Product Donation Program, established in the 2014 Farm Bill.

CBO budget scoring

Each year, the Congressional Budget Office (CBO) forecasts spending for mandatory federal programs for the next 10 years. Known as the CBO Baseline, these spending estimates are used during farm bill negotiations and generally set the upper limit on ag spending. For 2018 Farm Bill negotiations, baseline spending of concern is for the 2019 through 2028 fiscal years.

At this point, analysis of the cost of federal dairy programs is not available. Read CBO baseline analysis from John Newton of the American Farm Bureau Federation and University of Illinois Ag Economists Jonathan Coppes, Gary Schitkey and Nick Paulson and Ohio State University Ag Economist Carl Zulaf.

For additional background on how the farm bill proposal becomes a law, read also from the Maryland Risk Management Blog: Understanding the farm bill reauthorization process and how you can influence it  end mark

Dave Natzke
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