Payment program aids dairy producers

COLUMBUS — With milk prices collapsing following two years of historical highs, an old dairy program reauthorized by the 2008 farm bill may aid dairy producers by adding additional income over the coming months.

Dairy producers are being encouraged to sign up for the Milk Income Loss Contract (MILC) — a program that provides monthly payments to producers when market prices drop below the program’s defined trigger price.

History lesson

MILC was first authorized by the dairy title of the 2002 farm bill, and after years of extensions has been included in the 2008 dairy title of the Food, Conservation and Energy Act.

MILC now includes a feed cost adjuster and increases in both the payment rate and production eligibility among small to medium-sized dairy farms.

“MILC functions similarly to the old grain countercyclical payment programs,” said Cameron Thraen, an Ohio State University Extension dairy economist.

“The program has an identified target or trigger price and when the market price drops below that trigger price, the difference between the two is calculated and farmers receive 45 percent of that difference.”

Free program

With milk prices tumbling nearly 35 percent in just the past few weeks due to decreased domestic and global demand and the outlook for 2009 looking grim, Thraen said that dairy producers should act quickly to sign up for the MILC program.

“There is absolutely no cost to sign up for the program,” said Thraen, who also holds an appointment with the Ohio Agricultural Research and Development Center. “Any producer who is not signed up for the program or is not thinking about signing up is missing an excellent opportunity.”

Thraen reminds producers that participating in the previous MILC program does not automatically enroll a producer in the current program. New sign-up forms must be completed and submitted.

Requirements online

Thraen outlines the requirements to join MILC and the details of how the program works in a series of documents located on his OSU Extension Web site: http://aede.osu.edu/programs/OhioDairy/MILC_Center/MILC_Center.htm.

The information includes a spreadsheet that allows dairy producers to calculate monthly eligible milk shipments, MILC payments, and total anticipated revenue from the program based on actual or estimated monthly milk and feed prices throughout fiscal year 2009.

The basics

The following are some basics dairy producers should know about MILC:
- Sign-ups for MILC began on Dec. 22, 2008. Producers can sign up anytime during 2009 to be eligible to receive potential payments, but must do so the month prior to when they would like to enter the program. Producers can sign up to participate in MILC by contacting their local Farm Service Agency.

- The cap on milk production to remain eligible is 2.985 million pounds per fiscal year. Once a dairy farm’s monthly milk shipment reaches the cap, the producer is no longer eligible to receive payments for the current fiscal year.

- There is no cost to sign up for the program. But once sign-up occurs and a start month is selected, there can be no adjustments.

That is, if a farmer enters the program during a time when there are no triggered payments, that farmer cannot readjust eligibility to a future date.

- New to MILC for the 2008 Farm Bill is the inclusion of dairy feed costs, which are calculated into the projected payment. The adjustment was made to reflect market shifts based on corn, soybeans and alfalfa prices.

- Payment per hundredweight is based on 45 percent of the difference between the market price and feed price adjusted MILC trigger price.

Incentive

“With milk prices looking like they will not recover to the levels of the past two years, MILC is quite the incentive for dairy producers to potentially have some extra money coming back to them each month.

“Producers whose milk shipments are under the cap should be in the program right now, while larger volume shippers must assess the market for the coming months to decide when to enter into the program to be eligible for payments,” said Thraen.

Thraen said that the collapse of global economies coupled with easing of milk production barriers are the main drivers behind decreased market prices for butter, skim milk powder, cheese and whey.

“Within a matter of weeks, international demand just fell away. Add the melamine issue in China which has severely curtailed demand in Asia, the European Union announcing the reinstatement of dairy product export subsidies that will reinforce the decline in international prices, as well as the strengthening of the U.S. dollar, and U.S. products are just not moving,” said Thraen.

Silver lining

Stateside, the good news is that lower market prices will eventually translate into lower dairy food costs for consumers. Look for reduced prices of cheese, milk, and butter later in the year, said Thraen.

According to the Ohio Agricultural Statistics Services, nearly 5 billion pounds of milk was produced in Ohio in 2007, valued at nearly $1 billion.

For more information on MILC, contact Thraen at 614-292-2702 or thraen.1@osu.edu.

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