by Scott Brown
The author is a research assistant professor in the department of agricultural and applied economics at the University of Missouri.
The MILC or Milk Income Loss Contract program was the first program that recognized that a safety net program needed to incorporate feed costs. However, MILC payments only offset 45 percent of the milk price decline once low margins initiated payments, leaving dairy producers to absorb the remaining 55 percent of the downturn.
This new program allows producers to choose how firm to make the safety net for their operation through an insurance program. For those with cropping enterprises, the new dairy insurance program contained in the farm bill operates much like the crop coverage. The new dairy coverage involves two main decisions.
The unprecedented flexibility offered under the new farm bill allows a producer to pick a level of margin coverage. Higher premium payments can be selected in return for higher margin coverage levels. Producers also select annually the portion of their production history to cover. The combination of margin level and quantity coverage allows a producer to customize to their operation's risk reduction needs.
The program design provides a meaningful risk management tool for nearly all dairy producers in the country. Many producers will find this to be one of the most important tools they will have in their toolbox to deal with catastrophic margin downturns like the industry experienced in 2009.
Although the current outlook has brightened substantially in the last few months with the return of lower feed costs and strong international dairy demand, this program will provide the safety net that will be needed if feed costs move higher or international demand slows. Dairy producers across the country need to begin evaluating how it fits into their operation.
USDA must begin this new program no later than September 1, 2014. That suggests that full program details should be available by mid- to late summer when USDA provides full program regulations. Producers should be prepared to head to their local Farm Services Agency office and determine their sign-up choices around the July to August time frame