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Time to start watching DSA’s proposed national margin

PD Editor Walt Cooley Published on 19 September 2012

If the Dairy Security Act, as included in the Federal Agriculture Reform and Risk Management Act of 2012, or Farm Bill, were to pass Congress before the end of its current session in December, it would implement the act’s provisions to begin tracking an “actual dairy producer margin.” That margin would be defined as the difference between the U.S. all-milk price and the average feed cost.

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Proposed legislative language to create such a margin has modified the feed cost formula since it was initially presented to dairy producers under the name “Foundation for the Future.”

( Click here or on the image at right to view it at full size in a new window.)

Congress has modified the feed cost adjusters for corn, soybean meal and alfalfa down about 10 percent for each commodity (i.e., 10.65 percent decrease for corn, 10.04 percent decrease for soybean meal and 9.86 percent decrease for alfalfa). The graph above shows the monthly margin for the past three years using the feed cost formula presented in current legislative language.

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What the graph means?
The margin indicated in the graph above will be closely watched by those producers who eventually

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sign up for margin protection.

Producers who seek margin protection at any level will be required to participate in the Dairy Market Stabilization Program, a temporary supply management program triggered when milk margins are less than $6 per hundredweight for two consecutive months or less than $4 for one month.

Green sections of the margin graph indicate that the difference between milk price and feed cost was above $6 and supply management was not in effect.

Red sections of the graph signify when milk margins would have been below $6 per hundredweight for two consecutive months or below $4 for one month.

During these periods, the act’s mandatory supply management would have been in effect for anyone receiving supplemental or basic margin protection as part of the program.

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Orange sections of the graph indicate times when the milk margin would have triggered temporary supply management but was suspended based on one of six scenarios that can suspend the program.

In the case of this month’s margin, an override scenario defined in Section 1436 of the act would apply:

B4 scenario – After two months of a milk margin below $4, if the U.S. Cheddar cheese or NFDM price is 7 percent above the world price, supply management is overridden.

Note: The graph does not attempt to predict a potential all-milk price increase based on a reduction in the supply of milk nationally. PD

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