It’s conference time in the U.S. Senate and House of Representatives when it comes to a new farm bill. But that begs the question: Will there be enough time to get it done before the pending recess and upcoming midterm elections?

The U.S. Senate’s version of the 2018 Farm Bill creates the Dairy Risk Coverage (DRC) program to replace the currently operating Margin Protection Program for Dairy (MPP-Dairy). DRC offers $8.50 and $9 coverage levels for the first 5 million pounds of production history. DRC eliminates the 25 percent minimum production history selection. The DRC premium for $9 coverage on the first 5 million pounds of covered production history is 18 cents per cwt. with a 25 percent premium reduction (13.5 cents premium) for those with between 2 million and 10 million pounds of production history and a 50 percent premium reduction (9 cents premium) for those with less than 2 million pounds of production history.

The U.S. House of Representatives’ version of the 2018 Farm Bill creates the Dairy Risk Management (DRM) program to replace MPP-Dairy. DRM also offers $8.50 and $9 coverage levels for the first 5 million pounds of production history and eliminates the 25 percent minimum production history selection. The DRM premium for $9 coverage on the first 5 million pounds of production history is 17 cents per cwt.

These changes to the MPP-Dairy would be significant and require dairy producers to think through their participation in these program alternatives if either becomes law. For example, the premium under the current MPP-Dairy for $8 coverage is 14.2 cents per cwt on the first 5 million pounds of covered production history and was 47.5 cents on the first 4 million pounds of production history under the 2014 Farm Bill. The move from $8 being the highest coverage level to $9 increases the frequency of payments by nearly 20 percent.

The conference committee will have some differences to consider as they work toward final legislation. The House version provides for a five-year sign-up for DRM and allows producers to choose Livestock Gross Margin for Dairy (LGM-Dairy) on production not covered by DRM. DRC would have an annual sign-up and no option to use LGM-Dairy if a producer chooses DRC.

Looking at results

It is instructive to look at how alternative-sized operations would have fared under these new dairy alternatives. Over the 2000 to 2017 period, a 2 million-pound production history operation that chooses $9 coverage and 90 percent production history coverage every year would have received $377,000 in payments under DRM and paid nearly $57,000 in premiums for a net benefit of $320,000, while the same operation would have received the same $377,000 under DRC and paid in nearly $31,000 in premiums for a net benefit of $346,000.

For reference, $8 coverage under the 2014 Farm Bill would have resulted in a net benefit of only $55,000 under MPP-Dairy.

The sixfold increase in historical benefits, relative to the original MPP-Dairy, shows DRM and DRC are stronger safety net alternatives for a 2 million-pound production history operation. Even larger operations will need to consider how to participate on at least their first 5 million pounds of production history since the 25 percent minimum production history requirement would be gone under either bill.

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(c) Hoard's Dairyman Intel 2018
August 13, 2018
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