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NMPF says market stabilization plan would not have taken effect before 2012

PD Staff Published on 21 September 2011

The market management element of the dairy legislative package being readied for introduction in Congress would not have been active in 2010 or 2011, according to the National Milk Producers Federation (NMPF), which helped develop the Foundation for the Future program on which the legislation is based.

NMPF made the announcement to clarify misconceptions that farm-level margins would have been tight enough in the past 18 months to activate the proposed Dairy Market Stabilization Program (DMSP), one of three elements of NMPF’s Foundation for the Future program.

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As originally drafted by NMPF, the DMSP’s calculation of margins used futures settlement prices found on the Chicago Mercantile Exchange (CME) for corn, soybeans and alfalfa hay.

But under the legislative draft proposed by Rep. Collin Peterson (D-Minnesota), and now also endorsed by Rep. Mike Simpson (R-Idaho), the DMSP margin calculation will use the feed costs reported by two USDA agencies – the National Agricultural Statistics Service (NASS) and the Agricultural Marketing Service (AMS) – in order to accommodate USDA reporting requirements for implementation of the program.

NASS currently reports the average corn and alfalfa prices received by farmers in the U.S., and AMS currently reports soybean meal prices at seven specific locations within the U.S.

NASS corn price reports are generally lower than the prices used in the CME corn contract settlements, according to NMPF. During the period January 2009 through June 2011, for example, the NASS U.S. corn price averaged $0.41 per bushel lower than the CME-derived corn price.

While using the AMS reports, instead of CME prices, for soybean meal would tend to have the opposite effect, the overall impact of using USDA’s NASS and AMS calculations of feed costs in 2010 and the first half of 2011 would have meant margins would have been wider under the legislative draft, and thus the Market Stabilization Program would not have been activated.

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Because the Dairy Market Stabilization Program only activates when the margin between the all-milk price and the feed cost calculation is $6 per hundredweight or less for two consecutive months, at no point would farm-level milk or feed prices have triggered the program in 2010 or 2011.

Yes: It has been nearly three years since the combination of declining milk prices and escalating input costs devastated the dairy industry. Many producers were forced out of business, while others just barely managed to survive.

The dairy safety net did not work in 2009 and it won’t work if similar events occur now. Current dairy programs are not keeping pace with the challenges facing today’s industry. In fact, the current levels of support will actually decrease in September of next year.

I recently put forward a discussion draft of proposed dairy reforms that I believe will offer better protection, create stability and inspire growth in the dairy sector.

The dairy industry can be a very diverse and divided industry, and for the first time I have seen agreement that the current system is hurting American dairy producers. We can’t let this opportunity pass us by.

Releasing a discussion draft, rather than legislation, gives the dairy industry the opportunity to weigh in and perhaps offer other suggestions. The reforms outlined in the discussion draft are not written in stone and there will certainly be changes before legislation is introduced.

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Working together, I believe we can create a safety net that will provide the support all sectors of the industry need while also being mindful of the current budget situation.

We all know that this country is facing a budget crisis. In today’s budget climate it is simply not realistic to suggest dairy program changes that cost more money than current programs.

Congress has repeatedly targeted agriculture as part of efforts to reduce the federal budget deficit. Dairy, like all agriculture programs, won’t be immune from future budget-cutting pressures. The discussion draft’s reforms provide savings and put us on the right path.

We need to act sooner rather than later, with real solutions, not just heated rhetoric. The symptoms leading up to the 2009 dairy crisis are again presenting themselves and I fear we could lose half our dairies if we have another collapse.

That would be devastating not only to the entire dairy industry, but also consumers in this fragile economy. With the continued uncertainty in Washington, this is our best chance to act.

Releasing the discussion draft was a first step. I look forward to building consensus. I plan to introduce bipartisan, cost-effective legislation in the coming weeks. I’ve appreciated the feedback from the dairy industry thus far and am hopeful producers and processors can come together in a constructive way in the best interest of our dairy industry.

We have the best dairy producers in the world. We need to ensure they have the backing and the safety net they need so they can continue to provide for American consumers.
Collin C. Peterson
(D-Minnesota)
House Agriculture Committee
Ranking Member

No: On August 10, I attended the National Milk Producers Summer Grassroots Tour in Syracuse. The first thing they did was show a 10-minute video explaining their Foundation for the Future dairy proposal.

I keep asking the question, “Whose future are they looking out for?” Certainly not ours.

In the video they state that if Foundation for the Future is made into law, it will give the processors the “opportunity” to pay us more for our milk. It didn’t say that they would, only that they could. Does anyone believe in the tooth fairy?

It seems to me that they had plenty of “opportunity” to pay us more for the two years that they made record profits and we made record losses. I was told point-blank that our milk goes to Company X and they are owned by Company Y, and they aren’t going to do a thing for you.

Also, component pricing would be done away with. We have a mixed dairy and that extra money for components is our survival money. What about all-Jersey dairies who have really high components?

Then there’s the margin protection deal. Their take is that the government would save money by doing away with MILC and that the government would cover the cost for the first $4 of insurance. If you wanted enough coverage to cover more of your costs, then you could buy it. The government is broke, so how much do you really think they are going to subsidize us for insurance?

For their supply management plan, you would have your “base.” If you produce more than your base or more than the market needs, you will be “taxed” accordingly. Half of that “tax” money will be used to purchase dairy products to be donated to food pantries.

The other half would go directly to the federal government to reduce the deficit. I think we’ve all been “giving at the office.”

One thing that was not mentioned is the MPC issue. Their take is that [milk protein concentrates] MPCs can now be made domestically and MPCs are not an issue. What?

There is absolutely nothing in their proposal that says that if we get nailed down to a supply management program that the processors wouldn’t or couldn’t import more and more MPCs to displace our domestic supply of milk, and kill the price we are paid for our milk.

Finally, some are trying to say that the make allowance would be done away with. In reality, it would not be done away with; it just would not be announced and would stay hidden.

Please, please call your senators and congressmen and tell them to just say NO to the Foundation for the Future. There is nothing in it that is looking out for our future. Ask them to please say YES to the Federal Milk Marketing Act of 2011. It is our only salvation.
Gretchen Maine
Waterville, New York

Yes: It’s always being said that farmers are price takers, not price makers, but under this new safety net, dairy producers will have the option of making a smart investment to prepare for the type of worst-case scenario like what we experienced in 2009.

Specifically, the Dairy Margin Protection Program (DMPP) offers a basic level of margin insurance at no cost to producers; all they will have to do is sign up for it, once the Foundation for the Future program is implemented.

Under the congressional draft, 75 percent of a farm’s milk production history will automatically be eligible for protection at $4 per hundredweight margin (defined as the gap between the all-milk price and a national average of feed costs).

But the real opportunity for farmers comes under the supplemental option of the DMPP, because up to 90 percent of a farm’s production history can be insured in increments up to an additional $4 per hundredweight. The cost of any optional, additional insurance will be shared between the USDA and producers who elect for supplemental coverage.

This gives farms of all sizes the chance to indemnify themselves at a level up to $8 per hundredweight, meaning that if the milk price is $14 and feed costs are above $6 per hundredweight, the insurance program will pay them on all their production that particular month.

Or if milk prices are $20 and feed costs are above $12, they’ll get paid. If producers don’t want that level of protection, the supplemental program offers a sliding scale of options, in 50-cent-per- hundredweight increments.

And the real attractiveness of this program to smaller-scale operators is that the margin insurance program allows for risk management regardless of whether you produce 100,000 pounds of milk per month, or 1 million. Many other types of private risk management tools require a minimum volume of milk in order to enter into a contract.

But the DMPP is open to everyone, large or small. This brings a new degree of protection to even the smallest dairies.

The DMPP is compatible with other risk management programs already in use, such as forward contracts. That type of program allows farmers to lock in a future price that may be attractive and profitable to them, whereas the DMPP allows producers to insure against an unattractive scenario where poor margins may bleed away their equity.

I farm with my two sons. For us, having insurance against equity loss would make it easier for us to sit down with the banker, because if he sees that we are protected against the downside, both he and I can invest more confidently in the future of our farm.
Doug Nuttelman
Dairy Producer
Stromsburg, Nebraska

Yes: I think a lot of producers are forgetting the basic supply-and-demand model from our first day of economics class. Production this year has been cut back from high feed costs which, luckily, has helped our mailbox milk checks. If some production had not been cut back, we would have had way less positive margins this year.

The margin insurance of FFTF is also more understandable and user-friendly than, say, the livestock gross margin insurance that few producers understand and use.
Aaron De Boer

No: How does this policy deal with overproduction? How does it deal with imports? If this policy is backed by any of the following, it will not benefit the dairy producer: Dairylea, DFA, Dean Foods, HP Hood.
Ken Medved

No: We cannot support FFTF. It is set up to benefit processors. They can increase and then make allowances whenever they want. They will set our milk where they want it and then let us collect our insurance from American tax payers!
Kenneth Horst
Phelps, New York

No: I enjoy freedom in this country. I will not stand for a plan that takes that freedom away from me and gives control to co-ops with yes men on their boards. Grass roots are the people who have to deal with this control in five years when their total milk checks are controlled by the big five co-ops.

Five percent goes toward the national debt. I pay enough tax! I also like working with my insurance company that is available to answer questions and enroll me six days a week. Enough is enough, Jerry K and Land O’ Lakes YES board.
cow man

No: I have seen five PowerPoint presentations on National Milk’s FFTF plan, read many articles and talked with people who support it. This plan benefits large Holstein conventional dairies.

The efficient dairies who may ship the same amount of milk year after year will be punished on FFTF’s plan, even though they do not contribute to excess milk supply. The Jersey, Guernsey, Milking Shorthorn and crossbred-based dairies will be punished on FFTF’s plan.

Yes, there were many dairies who took losses in 2009. However, there were also many dairies who were profitable in 2009 (although not as much), as we were. We choose to use a management system that is profitable for us even in low milk-price years.

If at any point we are not profitable, we will first look at our own choices and change our own management style and system so that we are … we will not look to put the blame elsewhere (on the pricing system) and make other people pay for our choices. We live in America, which was based on the free-enterprise market system. Supply and demand work very well.

Yes, it may put some very small or very large dairies out of business. It does the same with grocery stores and retail shops. Yes, 25 percent of farms may be producing 75 percent of the milk supply (which, by the way, who cares?). But why should 75 percent if the farms subsidize the other 25 percent so they can flood the market with milk?

P.S.: We pay enough income tax to the federal government. We should not have to pay any extra to help pay down the deficit. Here, we only spend what we have and no more. The government can learn to do the same.
TJSH

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