Farm Science Review opens with farm bill commodity discussion

September 16th, 2014 Chris Kick

LONDON, Ohio — Early visitors to the 2014 Farm Science Review got a heavy dose of new acronyms and policy terms, during a farm bill crop update moderated by OSU ag economists and farm policy experts.

There are at least four main programs crop farmers can choose from — and they’re all complex and multifaceted.

“These have multiple moving features going on,” said Carl Zulauf, OSU farm policy expert. “I’m sorry they’re complex. But you’ve got to understand, that complexity means difficult answers.”

Program choices

They include the Agriculture Risk Coverage (ARC) county level program, the ARC individual farm program, and the Price Loss Coverage (PLC) program. And, farmers can participate in a new insurance program, called the Supplemental Coverage Option (SCO).

The ARC generates payments to farmers when pre-acre actual market revenue falls below the ARC per-acre revenue guarantee. Growers have a choice of whether to calculate actual revenue and revenue guarantee on county yields or on farm yields. Payments are calculated using base acres.

The PLC is basically the previous countercyclical payment program with a new name and higher trigger prices. Payments are triggered when the season-average market price is less than a crop’s reference price.

The SCO is a new crop insurance program that makes payments if county revenue or yield falls below 86 percent of the SCO guarantee. Unlike PLC and ARC, SCO payments will be based on planted acres.

What’s the difference?

In general, the ARC option will likely fit farmers who want to take a little more risk, while the PLC helps protect against drastic losses. But there still is no “default decision on program choice,” Zulauf said.

This is because of the complexities with each choice, and the ever-changing commodities market. On the one hand, it might make sense to protect oneself the most against major losses, but Zulauf said the smaller, “shallow” losses can be “just as dangerous, just as difficult,” especially over a period of several years.

The farm bill is in effect for five years, which means farmers need to give a lot of forethought and calculation to which program best fits their operation.

The ARC-Individual option allows farmers to protect their farm on an individual, per-farm basis.

The ARC-County is a county crop loss program with a coverage range limited to 76-86 percent. If the ARC benchmark revenue is reasonably close to the insurance guarantee, a farm — especially if cash-flow is restrained — may choose to buy individual insurance at 75 percent coverage and use ARC-CO to provide partial coverage, at the 76-86 percent level.

Both ARC-CO and PLC have a minimum price, and the PLC has a reference price. However, if market price is below the reference price for multiple years, PLC will likely pay more because ARC’s revenue benchmark changes with market conditions, and therefore declines if the low prices persist.

Calculate what’s best

Indeed, the options are complex, and Zulauf and the other panelists urged careful forethought and calculation. Calculators are being developed that will allow farmers to enter their data and determine their best option, but Zulauf warned that calculators are “only as good as the information you enter.”

He’s heard word that calculators could be available online by the end of September, but another issue is, the U.S. Department of Agriculture is still developing some of the rules for how to implement the commodity programs. These final rules could impact the calculation, and the farmer’s decision process.

Zulauf said there is speculation the rules will be finalized by late fall to early winter, at which point farmers will have a better understanding of which option works best.

He expects about $5 billion already could be paid to farmers this year, based on provisions within the new farm bill.

“Farmers have had choices before,” Zulauf said. “They’ve just never had these kinds of choices.”

Helpful resources

The panel was moderated by OSU Ag Economist Matt Roberts. OSU is involved in a statewide effort to help farmers understand their options, and Zulauf has published numerous articles about the issue. For more information, visit his article Program Choice — A Big Picture Perspective.

The one acronym most people already know is FSR — Farm Science Review — which continues Sept. 16-18 at the Molly Caren Agricultural Center in London, Ohio.

(Some information from Choices and the Agricultural & Applied Economics Association.)

Meetings will help dairy farmers navigate new farm bill programs

August 14th, 2014 Other News

COLUMBUS — Dairy and ag economics experts from Ohio State University’s College of Food, Agricultural, and Environmental Sciences will hold meetings across Ohio as part of an effort to help farmers learn more about the 2014 farm bill and how it will impact dairy producers.

Dianne Shoemaker, an Ohio State University Extension field specialist in dairy economics, and Cameron Thraen, an associate professor in the Department of Agricultural, Environmental and Development Economics, will present information on the Margin Protection Program for Dairy (DMPP), a new national voluntary dairy safety net program.

The USDA plans to launch the DMPP program by Sept. 1, and the Farm Service Agency has been charged with devising the rules and administering the program, Shoemaker said.

“This is a major change for dairy farmers,” she said. “Every farm is going to have to make a decision as to whether they will participate or not.

“But you can’t make a sound decision if you don’t understand how the program works and what it means for your farm under different feed and milk prices.”

Meeting schedule

The dairy producer meetings will be held from 9:30 a.m. to 3 p.m. at the following dates and locations:

Sept. 3 at Romer’s St. Henry, 321 South Eastern Ave., St. Henry, Ohio. Registration is $15 with a deadline of Aug. 29 to register.

Sept. 11 at Mahoning County Experimental Farm, 7475 Columbiana- Canfield Rd., Canfield, Ohio. Registration is $15 with a deadline of Sept. 4.

Sept. 15 at the OARDC Shisler Center, 1680 Madison Ave., Wooster, Ohio. Registration is $15 with a deadline of Sept. 8.

Additional information about upcoming programs and on-line resources is available at

Ohio Farmers Union to hold farm bill forum

July 18th, 2014 Other News

COLUMBUS – Farmers around Ohio will soon be faced with several choices concerning the national safety net for agriculture.

To help farmers get fully informed about coming ag commodity program changes due to the 2014 farm bill, the Ohio Farmers Union along with POET Biorefining, Superior Energy Solutions and First Federal Bank will hold a farm bill implementation forum later this month at Bowling Green State University.

Two paths

Under the new law, farmers will take one of two paths regarding the ag safety net. One option is Price Loss Coverage, or PLC, a price-based assistance program. The other is Agricultural Risk Coverage, or ARC, a farm revenue-based program. The choice farmers make around the country will stick with them for the next five years.

In this farm bill, direct payments are out – replaced by ARC and PLC.

Under these paths, farmers will also choose whether to keep their current Farm Service Administration base acres or payment yields or make adjustments under the new law.


Logan said there is a level complexity in the decision-making process for farmers this year due to the changes in the programs and the fact that decisions made in 2014 will last for five years.

As an example of the complexity, farmers may elect to take on a new form of crop insurance – the Supplemental Coverage Option – but only those farmers who have elected the PLC program for their acres.

FSA has not announced when the new programs will actually be available for signup so farmers do still have time to learn more about the new programs and begin considering their choices.

“There is going to be a lot for local FSA offices to explain to producers in a relatively short period of time,” Logan said regarding the eventual rollout of the new farm programs.


The forum will be held at 1 p.m. July 25 at BGSU, Bowen-Thompson Student Union in the Grand Ball Room. Moderated by Logan, there will be a panel presentation and time for questions and answers from those attending.

Panelists include:

• Joe Shultz, Chief Economist, U.S. Senate Committee on Agriculture, Nutrition and Forestry
• Jonathan McCracken, Legislative Agriculture Assistant, Office of Sen. Sherrod Brown
• Carl Zulauf, Professor, OSU Department of Agricultural, Environmental and Development Economics
• Terry Cosby, State Conservationist, USDA Natural Resources Conservation Service
• Tony Logan, State Director, USDA Rural Development
• Steve Maurer, State Executive Director, USDA Farm Service Agency

2014 farm bill changes for FSA Farm loans

April 10th, 2014 FSA Andy

Hello Again!

The 2014 Farm Bill made several modifications to the Farm Service Agency farm loan programs. These modifications were implemented as of February 7, 2014 when the President signed the Farm Bill.

The definition of a qualified beginning farmer has been modified. It was based on the median farm size and has been changed to the average farm size owned. A beginning farmer is now defined as “does not own a farm greater than 30 percent of the average sized farm in the county. ”This applies to farm ownership purchase loans before buying farm land.

As an example: Columbiana County, Ohio- the median farm size is 60 acres and 30% is 18 acres while the average farm size is 124 acres and 30% is 37.2 acres. This results in more farm operators qualifying as beginning farmers.

The maximum loan amount for a Direct Down Payment Farm Ownership loans have been increased from $225,000 to $300,000. Direct Down Payment Farm Ownership loans are for beginning farmers and socially disadvantaged farmers to purchase farm real estate. The applicant must have 5% down; FSA loans 45% of the purchase up to $300,000; and another lender loans the remaining 50% of the purchase.

The interest rate charged on Direct Farm Ownership Joint Financing loans made with another lender is now set at 2% below the regular Direct Farm Ownership loan rate with a minimum of 2.5%. The other lender (Farm Credit, bank, etc.) must loan at least 50% of the total amount borrowed. The goal is to encourage joint financing and thereby stretch the FSA direct farm ownership loan dollars.

Limited resource interest rates are now available to beginning and veteran farmers who receive a microloan. Borrowers will be given a choice between the limited resource interest rate or the regular operating loan interest rate. Currently the regular operating loan is lower than the set limited resource rate but this may not always be.

Microloans made to beginning and veteran farmers are to be exempt from the direct loan term limitations. Term limits will still apply for non-microloan direct loans such as regular operating loans and farm ownership loans. Presently applicants are eligible to close direct operating loans in 7 calendar years and a beginning farmer’s eligibility is limited to a maximum of 10 years.

The definition of a “veteran farmer” has been established as: a farmer who has served in the Armed Forces (as defined in section 101(10) of title 38 United States Code) and who (a) has not operated a farm, or (b) has operated a farm for not more than 10 years.

The percentage of guarantee for Conservation Loans will increase to 80% for non-beginning farmers.

For beginning farmers and socially disadvantaged farmers the guarantee percentage for Conservation loans will increase to 90%. Guaranteed Conservation loans can be used for installation of conservation structures to address soil, water, and related resources; installation of water conservation measures; and the establishment or improvement of permanent pasture.

Previously applicants could not receive Guaranteed Operating loans for more than 15 calendar years. This term limit has now been eliminated.

Previously Rural Youth loans were limited to rural areas or towns with populations of less than 50,000. This rural restriction has now been removed and youth loans are now available to all regardless of the population where they reside. The goal is to open the program up to urban youth who are interested in agricultural projects such as urban gardens. The biggest FFA Chapter in the US is located in Philadelphia, Pennsylvania.

Additional information on FSA Farm Loans can be found by visiting a nearby FSA Service Center or online at

That’s all for now,
FSA Andy

Understanding the new farm bill will take patience

April 3rd, 2014 FSA Andy

Hello again,

I sure have seen a lot of information about the new farm bill in the newspaper. There is some good information out there with most of it being put out by our agency. Like everyone else, I read the information and store it away until a sign-up period becomes a reality.  I compare the news releases to the directives and software that we have actually received in the local county office.

Huge disconnect

Sometimes I see a disconnect in what is being released to the public and what is available to us in the local offices. A program deadline will be published in a newspaper, and that may be the first time we are made aware of it. The administrators will publicize program deadlines without making the forms, software or policy available to us.

The local producer sees it in the paper, calls the office and we have to explain to them that we are aware of what they read, but they have not given us the necessary tools to complete the job.

I often times compare it to spring planting — you have the tractor, you have the planter, you have the field all ready to be planted, but you don’t have any seed because your seed dealer put it on the truck to be delivered but the delivery truck ran into an unforeseen problem.

Frequently that is what happens in our agency — a mission is developed, a time frame is implemented, but it doesn’t always allow enough time for the information to get to the local offices where the program is actually implemented.


Down below is some information about a permanent disaster program that has a deadline of April 15, we already know we will not be trained on this program until the week of April 14. So be patient with your local office, as soon as the information is received your sign-up will be our priority, even when we read the other articles telling us that 250 more local offices will be closed. We are the Farm SERVICE Agency, we take pride in knowing that SERVICE really is our middle “name.”

The 2014 farm bill, formally known as the Agricultural Act of 2014, makes the Livestock Forage Program and Livestock Indemnity Program permanent programs and provides retroactive authority to cover eligible losses back to Oct. 1, 2011.

LFP provides compensation to eligible producers who suffered grazing losses due to drought and fire. LIP provides compensation to livestock producers who suffered livestock death losses in excess of normal mortality due to adverse weather. USDA is determined to make implementing the livestock disaster programs a top priority and plans to open program enrollment by April 15, 2014.

As USDA begins implementing the livestock disaster assistance programs, producers should record all pertinent information of natural disaster consequences, including:

• Documentation of the number and kind of livestock that have died, supplemented if possible by photographs or video records of ownership and losses
• Dates of death supported by birth recordings or purchase receipts
• Costs of transporting livestock to safer grounds or to move animals to new pastures
• Feed purchases if supplies or grazing pastures are destroyed
• Crop records, including seed and fertilizer purchases, planting and production records
• Pictures of on-farm storage facilities that were destroyed by wind or flood waters
• Evidence of damaged farm land.

Still have questions?

Many producers still have questions. USDA is in the process of interpreting Farm Bill program regulations. Additional information will be provided once the enrollment period is announced. In the meantime, producers can review the LIP and LFP Fact Sheets.

Thanks for your patience as USDA works diligently to put Farm Bill programs into action to benefit the farmers and ranchers of rural America.

That’s all for now,
FSA Andy

Dairy producers weighing shift in new farm bill

March 17th, 2014 Other News

UNIVERSITY PARK, Pa. — As the dust settles on February’s enactment of the Agricultural Act of 2014, commonly referred to as the farm bill, experts continue to analyze the bill’s provisions to determine what the legislation means for farmers .

With the U.S. Department of Agriculture busy writing new rules to implement the nearly 1,000-page law, it may be too early to know all the implications.

The Margin Protection Program will go into effect by Sept. 1.  Under the program, dairy farmers who participate will pay a $100 annual enrollment fee that will ensure them indemnity payments if their margin — calculated by USDA using the all-milk price minus the average feed cost — drops below $4 per hundredweight for a defined two-month period.

But one thing is certain, according to an agricultural economist in Penn State’s College of Agricultural Sciences: The bill’s dairy provisions continue the shift toward a greater reliance on risk-management approaches to provide a safety net for farmers.

The biggest thing about the 2014 farm bill is this continued move away from disaster and counter-cyclical payments and price supports to insurance-driven tools, said James Dunn, professor of agricultural economics.

“Typically, the government will subsidize the insurance to make it more attractive for the farmer, but the insurance company basically covers the risk. That makes the budget impact of the farm bill more predictable.”

Margin protection

The most important dairy provision in the bill, Dunn said, is the new Margin Protection Program, which will go into effect by Sept. 1.

Under the program, dairy farmers who participate will pay a $100 annual enrollment fee that will ensure them indemnity payments if their margin — calculated by USDA using the all-milk price minus the average feed cost — drops below $4 per hundredweight for a defined two-month period.

Farm milk prices typically are expressed on a per-hundredweight basis. (One hundred pounds of milk is equal to about 11.63 gallons.)

“The Margin Protection Program supports producer margins and not milk prices,” Dunn said. “It’s designed to help farmers deal with both catastrophic conditions, such as weather extremes, and prolonged periods of low margins.”

Overproduction ‘disincentive’

The program also discourages unsustainable growth and provides a disincentive for overproduction by limiting first-year coverage to a producer’s highest level of annual milk production during the previous three years, Dunn explained.

In subsequent years, any increase in production that exceeds the national average increase will not be protected.

Producers can choose to cover between 25 and 90 percent of their production history and can buy additional protection for margins ranging up to $8 per hundredweight, with higher premiums for larger herds.

Will it help?

Dunn said looking at recent history provides a clue to how the Margin Protection Program might benefit producers.

“In 2009, when the costs of seed, fertilizer, chemicals, diesel fuel and other inputs were extremely expensive, milk prices were in the dumpster, averaging $14.41 per hundredweight for the year,” he said.

“If the Margin Protection Program had been in effect then, producers would have received payments for 11 of the 12 months of that year.

“But under the old system, which provided payments or price supports only when milk prices fell below a certain price, farmers in 2009 received little or no support because the target price wasn’t reached,” he said.

“Unless they had bought insurance or used some other risk-management system, they were on their own. Some went out of business and defaulted on loans because the cost of production was higher than their income from milk sales.”

Product donation

Another provision in the farm bill established the new, margin-based Dairy Product Donation Program.

Under this program, USDA will create demand by purchasing dairy products to donate to food banks or similar nonprofit organizations only if margins fall below $4 for two consecutive months.

The purchases will occur for three consecutive months or until margins rebound above $4.

What’s eliminated

Three dairy programs were targeted for elimination or phase-out in the 2014 farm bill:

  • The Dairy Product Price Support Program, under which the government supported prices with a standing offer to purchase cheddar cheese, butter and nonfat dry milk.
  • The Dairy Export Incentive Program, which offered subsidies to exporters of U.S. dairy products to help them buy products at U.S. prices and sell them at lower international prices.
  • The Milk Income Loss Contract Program, which compensated dairy producers when domestic milk prices fell below a specified level.

Still need safety net

Although many milk producers currently are doing well with milk prices at or near record highs, Dunn said the need for a dairy safety net remains.

“History shows us that one thing is absolutely true — prices will come down again.”

Insurance and the new farm bill

March 10th, 2014 Other News


Though members of Congress often have every intention of enacting a new farm bill well before farmers have to make planting decisions, so farmers can take the new policies into consideration in their planning process, very often planting is under way before the legislation is completed and signed into law by the president.

This farm-bill year is no different.

Guest Commentary

Winter wheat farmers planted their crop months ago, hoping that the rules would not change too drastically.


The regulations needed for the new cotton program, STAX, have not been released for public comment, so cotton producers will receive a lowered level of Direct Payments for the 2014 crop year.

For the program crops covered by crop insurance, the programs that were in effect in 2013 will still be in effect in 2014 with no major changes.

Farmers will still be able to protect themselves against declines in price and yield. The yields will be based on historic yields, while the prices will be based on prices in effect during the period in which the insured price is set.

Because current prices are much lower than they were a year ago, the level of price protection farmers will be able to obtain in 2014 will be lower as well.

The government’s share of the premium will remain the same as it has been in the past. With lower prices, the premium cost for revenue insurance will be lower than it was last year.

With lower premium levels for a given product, farmers may choose to buy higher levels of protection than they did in 2013.

Beginning with the 2014 crop, conservation compliance is tied to receiving the government supplement for crop insurance. For most farmers that will have little impact on their operations because they previously participated in the Direct Payment program which required conservation compliance as well.

While farmers don’t have to worry about major changes in the crop insurance program this spring — other than the impact of lower prices — they do have crucial decisions to make with regard to which one of two programs — available in the 2014 Farm Bill — they enroll in for each of their major crops.

The crop-by-crop decisions are crucial because they will have to be lived with for the five-year length of the 2014 Farm Bill.


The two choices are Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC).

As we wrote two weeks ago, the “ARC guarantee for a covered commodity in a crop year is 86 percent of the benchmark revenue, which for county coverage is the product obtained by multiplying the average historical yield for the most recent 5 crop years, excluding the high and the low [the Olympic average], by the [Olympic average of the] national average market price received by producers during the 12-month marketing year for the most recent 5 crop years.”


Payments for a crop for which ARC was chosen are paid on 85 percent of the farm’s base acres plus any former cotton base acres planted to the crop. These payments are capped at 10 percent of the benchmark revenue.

Farmers can also choose ARC at the farm level as well the individual crop.


The PLC program operates much like the previous counter-cyclical-payment program with a fixed reference price — known as the target price in the 2008 Farm Bill — for each covered crop.

When the season average price for any covered crop falls below the reference price farmers are paid the difference between that crop’s reference price and national season average price times the farm’s payment yield times 85 percent of the base acres for the covered crop plus former cotton base acres planted to the covered crop.


Reference prices for the PLC program are wheat, $5.50/bushel; corn, $3.70/bushel; grain sorghum, $3.95/bushel; barley, $4.95/bushel; oats, $2.40/bushel; long grain rice, $14.00/hundredweight (cwt).; medium grain rice, $14.00/cwt.; soybeans, $8.40/bushel; other oilseeds, $20.15/cwt.; peanuts $535.00/ton; dry peas, $11.00/cwt.; lentils, $19.97/cwt.; small chickpeas, $19.04/cwt.; and large chickpeas, $21.54/cwt.

As is common for decisions like these, a number of factors will figure into the crop-by-crop enrollment decisions.

Factors like crop yield expectations/history/variability, rotation considerations, landlord wishes and/or cash rent commitments, bankers’ directives on receiving production loans, expectations about future production costs, risk tolerance — both psychological and financial — and so on.

But perhaps most important of all will be producers’ expectations about crop price trends, and crop-price variability, over the term of the farm bill.

Will future crop prices remain above the reference prices in most years or is there a significant risk that prices will fall substantially below the reference prices during the duration of the 2014 Farm Bill.

Answering that question is critical, but it is important to take all considerations into account and to work through the numbers.

Spreadsheet templates and decision aids are available from many of the state extension offices to help you do the analyses for the crop-by-crop ARC vs. PLC decisions.

As for the level of crop insurance to carry for this crop-year, many farmers will make that decision in consultation with their bankers. We are sure producers will be more than casually interested in their bankers’ views about crop prices beyond this crop season as well.

(Daryll E. Ray holds the Blasingame Chair of Excellence in Agricultural Policy, Institute of Agriculture, University of Tennessee, and is the Director of UT’s Agricultural Policy Analysis Center (APAC).)

(Harwood D. Schaffer is a Research Assistant Professor at APAC. 865-974-7407; Fax: 865-974-7298; and;

New farm bill gives farmers new options for risk management

March 7th, 2014 Other News

CHAMPAIGN, Ill. — The 2014 farm bill gives farm operators and landowners the choice among fixed price supports (PLC) and county- or farm-level revenue coverage (ARC). Although still early, some general conclusions about the programs can be reached.

Assuming trend yield levels in 2014 for corn and soybeans, County ARC payments in 2014 would reach their limits in most Midwest counties at price levels that are above the PLC reference price levels, but below the USDA’s projections for the 2014 marketing year.

In comparing the Individual and County ARC options, Individual ARC seems likely to trigger smaller payments than County ARC under most circumstances. This is because Individual ARC pays on 65 percent of base acres compared to 85 percent for County ARC.

Also, by averaging revenues across crops, Individual ARC will tend to reduce the likelihood and size of payments due to diversification effects.

Individual ARC also has higher reporting requirements than the other choices.

However, Individual ARC does provide revenue protection based on actual farm-level yields which could make it more desirable in areas where there is significant yield basis risk (i.e. the potential for significant difference between county and farm yields).

Second, the choice between ARC and PLC will be fundamentally related to price expectations relative to the reference price.


Take corn as an example with a $3.70 reference price. If MYA prices are expected to be above $3.70 over the next five years, ARC will provide better protection since PLC will never trigger payments.

If prices are expected to be very low, averaging less than $3, PLC will arguably provide better support due to the adjustment in the ARC revenue guarantee to lower prices and the 10 percent cap on ARC payments.

Price expectations in the $3 to $3.70 range make the comparison and decision more difficult.

ARC will potentially make larger payments than PLC toward the higher end of that price range, particularly during early years of the farm bill. However, PLC could make larger payments at the lower end of the range, particularly in later years.

For corn and soybeans, price expectations offered by contracts on futures markets suggest that County ARC will make larger payments. This expectation of higher payments should be weighed against the higher payments offered by PLC at low, but unlikely, prices.

Supplemental off table

Finally, the choice of either ARC option will make the producer ineligible to purchase the supplemental coverage option (SCO) crop insurance program on that farm, which will be made available beginning in the 2015 crop year.

Related to this, in addition to price expectations, producers should also consider how the base acreage on their farms compares to what they expect to plant over the next five crop years.

The PLC and ARC commodity programs tie payments to base acreage while the SCO program covers planted acreage.
(Source:; issued by Jonathan Coppess and Nick Paulson, Department of Agricultural and Consumer Economics, University of Illinois.)

Experts analyze dairy policy in 2014 farm bill

February 11th, 2014 Other News

(By Marin Bozic, John Newton, Andrew M. Novaković, Mark W. Stephenson, and Cameron S. Thraen.)

COLUMBUS — The dairy subtitle of the new agricultural act offers a total revamping of the safety nets that have been in place for the dairy sector going back to the middle of the 20th Century.

The Margin Protection Program for Dairy Producers (MPP) might be considered a variation of the countercyclical payments (MILC) that began in 2002, but it is notably different in two important ways.

Related: The 2014 farm bill brings dairy policy change

First, it substitutes Milk Income Over Feed Costs for farm price as the measure by which we economically evaluate market conditions and support dairy farms. Second, it does not restrict eligibility for the program by farm size. Larger farms have to pay a higher premium, but they are not categorically limited in participation.

The Dairy Product Donation Program uses the mechanics of the old Dairy Price Support Program to purchase dairy products, but it really does so as an extension of existing programs that allow USDA to purchase dairy products on behalf of a variety of food assistance programs.

Advocates of a new approach argued that the limitations of existing programs were vividly revealed during the economic events of 2009, and repeated in 2012. Hence, they argued, bold new programs are needed. Whether the programs proposed here will prove to be the answer farmers seek is something that will be debated and estimated, but we won’t really know unless and until they are tried.


The Agricultural Act of 2014 was passed by the U.S. House of Representatives Jan. 29 and was passed by the Senate Feb. 4 and signed by the president Feb. 7.

The dairy provisions of the act are primarily a variation of H.R. 2642. Existing safety net programs are repealed and replaced with two new programs:

  1. The Dairy Product Price Support Program (DPPSP), effective immediately.
  2. The Milk Income Loss Contract (MILC), effective once the new Margin Protection Program for Dairy Producers becomes operational, or Sept. 1, 2014, whichever is earlier.
  3. The Dairy Export Incentive Program (DEIP), effective immediately.

(Note that the DPPSP, passed in the Food, Conservation and Energy Act of 2008 (i.e. 2008 farm bill) is repealed, but the permanent Dairy Price Support Program that is contained in the 1949 Agricultural Act is not. MILC and DEIP do not have underlying permanent authority and are forever gone.)

Continued programs

Certain other authorities are continued, including extensions of:

  1. The Dairy Forward Pricing Program — allows non-cooperative buyers of milk who are regulated under federal milk marketing orders to offer farmers forward pricing on Class II, III, or IV milk, instead of paying the minimum federal order blend price for pooled milk.
  2. The Dairy Indemnity Program — provides payments to dairy producers in the unlikely event that a public regulatory agency directs them to remove their raw milk from the commercial market because it has been contaminated by pesticides, nuclear radiation or fallout, or toxic substances and chemical residues other than pesticides. Payments are made to manufacturers of dairy products only for products removed from the market because of pesticide contamination.
  3. Certain provisions to augment the development of export markets under the National Dairy Promotion and Research Program.

New programs

The new programs are:

  1. The Margin Protection Program for Dairy Producers (MPP) — a voluntary program that pays participating farmers an indemnity when a national benchmark for milk income over feed costs (the actual dairy production margin or ADPM) falls below an insured level that can vary over a $4 per cwt. range.
  2. The Dairy Product Donation Program (DPDP) — a program that requires the secretary of agriculture to immediately procure and distribute certain dairy products when the ADPM falls below a the lowest margin level specified for the MPP. These products would be targeted for use in domestic, low-income family, food assistance programs.

In addition, there is language related to the promulgation of a federal milk marketing order that covers California. The act also repeals the authority for a federal milk marketing order review commission. Originally authorized in the Food, Conservation and Energy of 2008, the commission was never funded and never appointed.

Margin protection plan

The new MPP contains several basic elements that combine to determine how, when and how much money dairy farmers can receive in periods of financial stress.

The main items are:

  1. An Actual Dairy Production Margin, which is a national estimate of dairy farm income from the sale of milk less an estimate of an average cost of feed for a hypothetical but nationally representative dairy herd.
  2. An Actual Dairy Production History (ADPH) for each participant.
  3. A coverage percentage, which is simply a percentage of the ADPH selected by each producer, to determine how much of their eligible milk they wish to cover. The resulting quantity applies to the calculation of total premiums and indemnities.
  4. A coverage level, which is a $/cwt. figure that defines the degree of margin protection desired by a participating farm. It corresponds to a range of outcomes as measure by the new Actual Dairy Production Margin.

Issues and challenges

While the new dairy title was designed in good faith and with great attention to detail, some unintended consequences may still occur:

  1. While market conditions may rapidly change, MPP premiums never do. The upside of this provision is that the MPP can serve as a protection against protracted low margin periods that cannot be managed using CME futures and options contracts. 

    A possible adverse side effect is the crowding out of private risk markets by subsidized government-provided margin insurance. In other words, if dairy farmers use the MPP heavily and stop participating in CME futures markets, those markets will lose valuable participants and liquidity that could threaten their viability.

  2. The MPP provisions may inadvertently result in a policy framework that gives advantage to “lumpy” over “incremental” growth at the farm level. 

    As described earlier, insurable production at any single location is determined by a combination of the historical milk production over 2011-2013 and the subsequent growth in national milk per cow.However, producers who choose to grow their business by building a brand new separate dairy operation at a new location would likely be able to enroll that operation in the program under the provisions governing “new entrants.” The act, as is commonly done for crops programs, includes a reconstitution provision.

    This purpose of this provision is to allow USDA to prohibit or control farmers who attempt to gain more benefits by reorganizing their business structure. USDA will clearly specify what producers may and may not do with respect to how they expand their milk production and qualify it for the MPP program. Nevertheless, it is likely that some opportunity will exists for new dairy farm businesses started by people already in dairy farming.

  3. There are several reasons why producers faced with very low margins may find it optimal to reduce milk production by culling. 

    First are the basic economics of milking a cow. When a cow’s production no longer justifies the cost of feeding and keeping her, she will be culled. Second, even if the cow is carrying her own economic weight, culling of cows on the margin may still be necessary due to cash flow needs on the farm.Third, cows on the margin may be culled or culled early because of favorable cull cow prices, which is currently the situation due to tight beef supplies. Because indemnities received under MPP should lessen cash flow challenges, culling that might otherwise have occurred is forestalled.

    This is consistent with the whole point of the program, but the effect is to maintain milk production and potentially prolong the duration of low margin periods. This is no different than the effect of the MILC program.

    The extent to which these kinds of countercyclical subsidy programs impact milk supply is subject to debate. Existing research about this effect is inconclusive. Further research will no doubt examine if this effect will or does materialize and to what degree.

  4. Actuarially fair premiums imply that the premium equals the expected long-term indemnity — insured businesses, in total, do not get more than they put in. 

    LGM-D is based on actuarially fair premium calculation methods. Observers of that program know that its premiums vary each month, depending on the outlook for milk and feed prices, and they generally have been high enough to give most farmers pause.We cannot say how heavily subsidized the premiums for MPP are, but it is easy to guess that, over a period of several years, the indemnities paid out will exceed the premiums collected. Indeed, it is quite possible that the level of taxpayer subsidy will be very large. If this is true, it implies that the MPP will reduce, and quite possibly very significantly reduce, market risk in dairy farming.

    It will not reduce the risks of disease or local weather effects faced more individually or regionally, but it would reduce the risk of price changes that are disadvantageous to all farmers.

    To the extent this is true, it could give incentives for investments or production decisions that otherwise would be deemed too risky.

    This means more production than would otherwise occur, which in turn means a lower price structure for milk.

    These kinds of effects are not unique to MPP. They can and historically did occur with the Dairy Price Support Program. The issue is not the design of the program, per se, but the extent to which a program subsidizes long term risks.

  5. To the extent the DPDP is triggered, it could send distorted market signals to various dairy product sectors, in essence inflating the true underlying demand for products that were sold to the government for donations.
  6. The MMP operates from a margin formula that defines income or returns over feed costs. Declines in the MMP margin can come about from any combination of movements in milk prices vs. costs. 

    In 2009, the situation could be described as declining milk prices relative to feed prices. In 2012, this situation might more aptly be described as rising feed prices relative to milk prices. The trigger for the use of DPDP does not distinguish the cause of a low MMP margin.

Much of the public discussion of the previous versions of a new dairy program seemed to assume that a low margin necessarily means a low milk price, meaning low relative to historical patterns of milk price.

An incremental government demand presumably will increase the milk price relative to feed prices and thereby raise the margin.

However, if the margin is low as a result of rising and high feed prices with an already adequate or even high milk price, as was the 2012 drought experience, it is not clear how effective these purchases will be in boosting the milk price and in turn the MMP margin.

It is not clear how much an already high milk price can be further accelerated. Clearly, strengthening dairy product demand will not reduce high feed prices in such situations.

(Marin Bozic is assistant professor in the Department of Applied Economics at the University of Minnesota and associate director of Midwest Dairy Foods Research Center. John Newton is assistant professor in the Department of Agricultural and Consumer Economics at the University of Illinois Urbana Champaign. Andrew M. Novaković is the E.V. Baker Professor of Agricultural Economics in in the Charles H. Dyson School of Applied Economics and Management at Cornell University. Mark W. Stephenson is director of dairy policy analysis and director of the Center for Dairy Profitability at the University of Wisconsin. Cameron S. Thraen is associate professor in the Department of Agricultural, Environmental and Development Economics at Ohio State University.)

Breaking: President signs 2014 farm bill

February 7th, 2014 Chris Kick

WOOSTER, Ohio — The president today (Feb. 7) signed the Agriculture Act of 2014 into law — the nation’s new five-year-farm bill — saying it will give farmers and consumers more opportunity, more security and risk management tools.

Early in his speech, Barack Obama compared the farm bill to a Swiss Army knife, due to the many things the farm bill does, including support for farmers, conservation, job growth, local foods and nutrition programing.

“It helps rural communities grow, it gives farmers some certainty (and) it puts into place important reforms,” he said.

The signing ceremony took place at Michigan State University’s Mary Anne McPhail Equine Performance Center.

Note: Farm and Dairy watched the signing via C-SPAN.

The $1 trillion bill reduces spending by about $23 billion, while ending direct payments to farmers and providing farmers new opportunities for crop insurance and disaster relief.

Congress ‘can’ agree

The president said the bill is a “good sign” that Congress can work in a bipartisan way “and actually get stuff done.”

See what ag groups think of the bill 

He said he hopes the bipartisanship will continue as Congress considers other parts of his agenda, including raising the minimum wage and immigration reform.

“Let’s keep the momentum going here,” he said.

Obama also praises the success of trade, saying the last five years have seen the “strongest stretch of farm exports in our history.”

Nutrition funding

Obama reminded the crowd that the farm bill is also about feeding people, especially the needy. About 80 percent of the bill goes toward food stamps and nutrition programing.

This bill cuts about $8 billion in food stamp spending over 10 years, but mostly by reducing loopholes.

Obama said the bill “helps make sure America’s children don’t go hungry. … We sure don’t believe that children should be punished when their parents are having a tough time.”

He also announced a new initiative to help further exports and farm commodity sales, called the Made in Rural America Initiative. And, he mentioned the local foods movement and how the farm bill supports local producers, as well as large-scale farming.

The House passed the bill Jan. 29 by a vote of 251-166.  The Senate passed the bill Feb. 4 by a vote of 68-32.