Milk Producers Council
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From The MPC Newsletter
Friday, September 23, 2011

The 'Dairy Security Act' Introduced in Congress - Time for Dairy Farmers to Speak Up
 By Rob Vandenheuvel, General Manager

For the U.S. dairy farmer, the foreseeable future is a scary sight.  Corn, alfalfa and other feed commodities are continuing at record or near-record highs.  As you can see from the dairy commodity report below, milk prices are already on the decline.  Fred Douma’s September estimated Overbase price in California is $18.24 per hundredweight – a price that no longer sounds all that spectacular (or even profitable) with feed costs where they are today.   And if cheese, butter and nfdm values just stay where they are (or heaven-forbid, go lower), October’s prices will be even lower. 

The U.S. Congress has recognized over the years that the dairy industry is volatile, and created a safety net system that consists of the Milk Income Loss Contract (MILC) program and the Dairy Product Price Support Program (DPPSP).  But given where feed costs are, how much of a “safety net” does a roughly $10 per hundredweight price “floor” feel?  (A $10 per hundredweight milk price today would make the 2009 dairy wreck look minor.)  And with the MILC program limited to covering only 2.985 million pounds per year, could that really be called a safety net in areas of the country where the average dairy would max out its MILC “protection” in maybe a month or two?

Fortunately, there are those around the country and in Washington, DC, that are working hard to help.  Today marked a significant milestone in that process.  A bill was introduced this week in the U.S. House of Representatives called the “Dairy Security Act of 2011” (H.R. 3062).  The bill, which was introduced by Congressmen Collin Peterson (D-Minnesota) and Mike Simpson (R-Idaho), is a slightly modified version of the draft legislation that was floated in July.  It is modeled after a proposal put forth by the National Milk Producers Federation (NMPF) known as “Foundation for the Future.”  Here are the three main pieces of the bill:

bullet Dairy Producer Margin Protection Program (DPMPP) – This is commonly referred to as the “insurance” part of the bill.  Under the DPMPP, a producer could choose to enroll in a direct-payment program run by the U.S. Department of Agriculture.  The basic program (which would come at no cost to individual dairies) would provide cash payments directly to dairy farmers when the national “margin” between milk prices and feed costs dropped below $4.00 per hundredweight.  In other words, when the average milk price across the country drops to less than $4.00 per hundredweight over the “feed cost calculation” (a formula that incorporates national values of corn, soybean meal and alfalfa), a payment would be made to all dairymen enrolled in the program.  Unlike the MILC program, this insurance program would not be capped at a specific volume of milk – instead it would cover 80% of the “historical production” of each dairy facility (which would be determined by the highest annual production for each dairy over the past three years).  In addition, a supplemental program would be available for dairies that wish to generate payments from the program at higher margin levels.  In other words, an individual dairyman could choose to customize the program so that a payment is generated whenever the price of milk is less than $5.00 per hundredweight above the feed cost calculation.  Or $6.00.  Or $7.00.  This additional coverage would include an annual premium paid by the dairy farmer.  The supplemental program could be customized to cover up to 90% of a dairy’s annual production.
bullet Dairy Market Stabilization Program (DMSP) – This is commonly referred to as the “market management” part of the bill.  One of the key changes in the latest version of the Dairy Security Act is that the DMSP would only apply to dairies that choose to enroll in the insurance program outlined above (the DPMPP).  If a dairy is enrolled in the DPMPP, they would be automatically part of the DMSP.  Under the DMSP, when the margin falls below $6.00 per hundredweight for two consecutive months (the national average price of milk falls to less than $6.00 per hundredweight above the feed cost calculation), USDA would notify the dairies enrolled in the DMSP that in the following month, they would only be paid for 98% of their “base production” (which can be determined by either the dairy’s production three months leading up to that point, or the production in the same month the prior year).  Milk produced above that level by a dairy enrolled in the DMSP would still be paid for by the milk handler, but these dollars would be diverted to a fund used to buy excess dairy products to be donated to food banks and feeding programs.  If the margin continues to fall below $5.00 or $4.00 per hundredweight, the DMSP would adjust to only pay enrolled dairy farmers for 97% and 96% of their “base production.”  At no point would the DMSP authorize payments below 96% of a dairy’s base production.  Once the margin recovers to above $6.00 per hundredweight for two consecutive months, the DMSP is de-activated and all calculations of “base production” are eliminated.  If the DMSP re-activates at a later time, the calculations will re-start from scratch.
bullet Federal Milk Marketing Order (FMMO) Reform – Unlike the previous “draft” version of this legislation, the Dairy Security Act does not directly make changes to the structure of FMMOs.  Instead, the bill instructs USDA to consider changes to FMMOs through their hearing process.  Included in the legislation is specific language mandating that USDA craft FMMO changes that would eliminate end-product pricing (which includes the use of make allowances) for milk sold to Class III (cheese) manufacturers.  Also included in the legislation is an opportunity for dairies to vote after USDA comes out with their proposed changes – a “yes” vote would implement the new reforms and a “no” vote would maintain the current structure.  This vote would only apply to the FMMO reforms.

Finally, with the DPPMP and DMSP providing a modernized safety net structure for the nation’s dairy farmers, the Dairy Security Act of 2011 would also eliminate the MILC and Price Support programs.

So where do we go from here?

The coalition of support is building for the Dairy Security Act.  This week, the Holstein Association joined a growing group of organizations (which includes Milk Producers Council) in supporting H.R. 3062.  Further, in the only arena that counts – the U.S. Congress – the legislation was introduced with a bi-partisan group of eight Members of Congress officially in support.  Those co-sponsors include Reps. Jim Costa (D-CA), Joe Courtney (D-CT), Rick Larsen (D-WA), Billy Long (R-MO), Kurt Schrader (D-OR), and Peter Welch (D-VT), in addition to Reps. Peterson and Simpson.  MPC greatly appreciates the leadership shown by these 8 Congressional representatives.  But in order to transform this legislative bill into the law of the land, we’ll need at least 210 more Members of Congress to step up and support H.R. 3062.

Dairymen in support of this much-needed reform of our dairy safety net policies need to speak up.  Many dairy farmer trade associations and cooperatives are working with Congress to urge their support of the bill, but individual dairies must be part of this effort.  Each one of you has a voice in this debate.

Our nation’s processors – as represented in Washington, DC, by the International Dairy Foods Association (IDFA) – continue to be opposed to any legislation that would empower dairy farmers to work collectively to help balance the supply and demand for raw milk.  Fortunately for the dairy producers in the country, our legislators in Congress understand how important it is to structure a safety net that covers both small and large dairies, and that supply/demand balance is the key to maintaining a vibrant dairy industry.  But they need to hear from the dairy farmers they represent!

Some individuals and groups have raised questions about whether or not this is a perfect bill (an impossible standard).  That’s the wrong question.  The real question before the industry today is whether or not the Dairy Security Act is a better alternative to what we have today.  After reading the outline of the bill above, and considering the pathetic level of protection we have under the current policies, there is no doubt regardless of which area of the country your dairy is located, this is a dramatic improvement in our safety net policies.  And on a political note, this is truly our only opportunity in the near future to make these fundamental changes.  Opportunities like this – a bi-partisan approach that improves our safety net programs and at the same time saves the Federal Government money – are few and far between.  So unless you are content to go into the future with the limited “protection” we have now, PLEASE PICK UP THE TELEPHONE!

Need help finding your Congressman?  You can use sites like www.cccarto.com/congress_maps or go through the House of Representatives’ website at www.house.gov.  You can also email or call Milk Producers Council and we can help you find the appropriate contact information.  The message our Congressmen need to hear is simple: Please support H.R. 3062, the Dairy Security Act of 2011.

 

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