The federal government soon could have the authority to regulate the amount of milk produced by dairy farmers, according to a dairy program included in the farm bill that passed the Senate on Monday night.
If data suggest theres an oversupply, the government would shave a percentage of the payment farmers take home for milk in an effort to adjust national milk production and raise profit margins. Thats the gist of the Dairy Market Stabilization Program included in the federal farm bill that passed the Senate, 66-27. Enrolling in that program would be mandatory for farmers who sign up for a new margin insurance program that would replace the current Milk Income Loss Contract program. Under the retooled program, the U.S. Department of Agriculture would make payments to farmers when the national margin (average milk price minus average feed costs) drops below $4 per hundredweight.
Those same margin insurance and supply management programs are included in the House version of the farm bill, which is expected to be debated on the full floor next week.
The market stabilization provision is expected to be a harder sell in the Republican-controlled House, because opposing legislators contend it would crimp milk production at a time when demand from dairy companies is skyrocketing, said Rep. William L. Owens, D-Plattsburgh. Mr. Owens, a member of the House Agriculture Committee in 2012, outlined why he supports the market stabilization program Monday during a phone interview.
The stabilization program is designed to kick in quickly but infrequently, spurring farmers to adjust milk production as a means to raise profit margins, Mr. Owens said. Reduced milk payments to farmers would be triggered under the following scenarios, according to the Congressional Research Service:
n When the national margin is below $6 for two consecutive months, farmers will receive milk payments based on either 98 percent of their production base or 94 percent of the current months milk marketings, whichever is greater.
n If the margin falls below $5 for two consecutive months, farmers will receive payments based on 97 percent of their production base or 93 percent of the current months milk marketings.
n If the margin falls below $4 in a single month, farmers will receive payments based on 96 percent of their production base or 94 percent of the current months milk marketings.
The stabilization program will be suspended when the margin is above $6 for two consecutive months.
In the House, Mr. Owens said, an amendment called the Dairy Freedom Act will be voted on that would strip the market stabilization program from the farm bill. Due to the number of legislators in the House who oppose the stabilization program, I would guess that the amendment will be defeated or passed by a very slim margin, he said.
Mr. Owens said he believes the stabilization program will be a boon for small dairy farmers because it is designed to limit the volatility of national milk prices and feed costs.
As your feed costs go up as a farmer, your profits shrink because youre focused on a milk marketing order that only pays so much per hundredweight, he said. This is trying to modify that system to make that better. Even if you drop down and pay farmers 90 percent of their milk production, in a period of time where costs are going up or prices are falling youll be better off in this system.
Annual administration fees will be required for farmers to enroll in the margin insurance program. Fees are $100 for those who produce less than 1 million pounds of milk, $250 for the production of 1 million to 5 million pounds, and $350 for the production of greater than 5 million pounds and less than 10 million pounds, according to the Congressional Budget Office. Those who dont wish to enroll in margin insurance and market stabilization programs can decide to opt out.
The House faces another huge hurdle to get the farm bill passed: A proposed $20.5 billion in cuts over 10 years to the Supplemental Nutritional Assistance Program, commonly called food stamps. That figure overshadows the $3.9 billion in cuts approved in the Senates version of the bill.
The $20.5 billion in cuts wont get Democrat votes, Mr. Owens said. Ultimately what will happen is that the number has to reach some sort of compromise, whether its $12, $10 or $8 billion.
A total of 218 votes will be needed in the House to pass the farm bill. Then, the House and Senate bills would need to be reconciled into a final version by a committee with members from both sides. The current farm bill approved in 2008 expires Sept. 30, and it would likely be extended another year if a bill isnt approved, Mr. Owens said.
I think it has about a 50-50 chance of passing in the House, he said. I think its going to be nip-and-tuck right to the end.