A series of pending decisions from USDA and Congress over coming weeks could leave milk producers with a significantly stronger new financial safety net, if the actions fall the way the industry hopes.
The first crucial action comes next month, when Congress is due to pass an omnibus spending bill to fund the government for the remainder of fiscal 2018. The Senate funding measure for USDA includes $1 billion in new assistance for dairy (and cotton) producers that would augment the dairy sector’s Margin Protection Program (MPP) and also provide an additional stream of funding, or baseline, for the farm bill.
In February, USDA is expected to take the next step in making milk eligible for the first time for crop revenue policies that are now restricted to corn, soybeans, wheat and other plant products.
And sometime in the first quarter of 2018, the House Agriculture Committee, and possibly the Senate committee as well, is expected to begin moving a new farm bill that producers hope will further improve MPP, assuming the program is addressed in the FY18 spending measure.
The dairy sector is increasingly optimistic that the crop insurance proposal will be advancing through USDA and the appropriations fix will be in law in time for the farm bill to put the final touches on a new safety net.
“I feel very good about where we are right now,” Jim Mulhern, president and CEO of the National Milk Producers Federation, said on the sidelines of the group’s recent annual meeting in Anaheim, Calif.
National Milk hasn’t asked lawmakers to sponsor a bill with changes to dairy policy, “because we want to be flexible and allow” the Agriculture committees “to fashion the policy that will work within budget constraints," he said.
There is broad unhappiness with MPP, which was created in the 2014 farm bill to protect producers against spikes in feed costs. Catastrophic coverage, which guarantees a margin of $4 per hundredweight between feed costs and milk prices, is available for a flat $100 fee.
Buy-up coverage is available at a premium for margins up to $8 per hundredweight, but producer participation in MPP has dropped sharply and is expected to fall even more after Agriculture Secretary Sonny Perdue announced in August that he would allow producers to withdraw from the program in 2018. Farmers enrolled 153.4 billion pounds of production in MPP for 2017, with only 3.7 billion pounds at buy-up coverage levels.
“We’ve received no payments from it,” said Amber Horn-Leiterman, whose Wisconsin operation signed up for MPP the first year it was offered and had to drop their participation in a USDA insurance program, Livestock Gross Margin insurance, as a result. Under current law, farmers cannot participate in both LGM and MPP at the same time, and LGM availability is limited anyway because of a budget cap.
Jerry Messer, a North Dakota producer, said he originally bought buy-up coverage at the $6.50 level but he decided he no longer needs that and now only pays for the basic, $4 coverage.
Lawmakers have been getting an earful about MPP’s shortcomings. It “was nothing but a scam,” Gretchen Maine, a semi-retired dairy farmer in Maine, told the House Agriculture Committee in October. “The farmers paid into it and got nothing in return.”
The industry sees the crop insurance proposal and MPP as complimentary. Under proposed reforms, MPP would become more of a catastrophic coverage plan for large-scale operations, which could further hedge their revenue risks with crop insurance. Proposed reforms to MPP are focused on providing benefits to the first 4 million pounds of production.
Step one in reforming dairy policy – passing an MPP fix in the omnibus – won’t be easy, although getting the provision in the legislation may not be that difficult. A Senate source close to the issue says the provision is likely to make it into the bill, adding that “it is incumbent on each commodity to work in good faith to develop proposals that are supported across all sectors of each industry.”
However, passing the omnibus in December will be a heavy lift because of immigration issues. President Trump is demanding funding for a border wall, while Democrats are threatening to shut down the government if the measure doesn’t include a provision allowing DACA recipients to stay in the country. Trump is ending the Obama-era Deferred Action for Childhood Arrivals program, which provides work authorization to people who were brought to the country as children by illegal immigrants.
The dairy provisions’ top Senate proponent, Vermont Sen. Patrick Leahy, the senior Democrat on Senate Appropriations, indicated to Agri-Pulse that he was frustrated over ta lack of progress toward a spending agreement. “You’ve got to have people who are willing to sit down and negotiate realistically and keep their word,” he said.
Further complicating chances of passing the omnibus is the GOP goal of passing tax reform before the end of the year.
The Senate provisions would also make cottonseed eligible for the Price Loss Coverage program, a top priority for the cotton sector, while lowering the cost of MPP to small- and medium-scale producers and boosting the prospects for payments.
The two provisions would cost about $1 billion over 10 years, but because of quirks in congressional budget rules, appropriators don’t have to offset those added costs because there would be no projected spending in fiscal 2018. To enact the same provisions in the farm bill, budget rules would require the Agriculture committees to cut spending elsewhere to offset the provisions’ future costs.
“It will be important to get the Senate appropriations language done here at the end of the year,” Mulhern said. “I expect we’ll be doing the farm bill in the first quarter,” Mulhern said of the importance of the omnibus bill.
Under the Senate provisions, premiums for the first 5 million pounds of dairy production would be eliminated on $4.50 and $5 coverage levels and reduced by as much as 80 percent at higher levels. Potential MPP payments would be calculated on a monthly rather than bimonthly basis.
Step two for dairy policy reforms, getting USDA to make milk eligible for crop revenue insurance, may be a slightly easier lift.
The American Farm Bureau Federation submitted the insurance plan to USDA last spring and is scheduled make a formal presentation on it to the Federal Crop Insurance Corp. board next month. If all goes as scheduled, the board could make a decision at its February meeting on whether to go forward with the proposal.
Under the revenue protection policy, known as Dairy-RP, milk producers could buy a policy to guarantee their quarterly revenue based on the amount of production they want to cover and a blend between prices for Class III and Class IV milk. (Class III milk is used for cheese; Class IV for butter and dried forms.)
NMPF joined the Farm Bureau and the National Farmers Union in sending a letter to the department in March that argued USDA had the legal authority to make milk eligible for crop insurance. Horn-Leiterman, whose farm milks nearly 1,000 cows, said she would take a serious look at the insurance if it becomes available. "It's another tool in the tool chest," she said. "Maybe that would be a better deal for us than some of the forward contracting and things like that."
Even if the first two pieces fall into place, dairy producers may still seek some further tweaks to MPP in the farm bill.
The Senate's FY18 appropriation provisions do nothing to address the formula for calculating feed costs. NMPF has been seeking to reverse a 10-percent cut that was made in the formula during consideration of the 2014 farm bill. Leaders of the House Agriculture Committee said that restoring the cut could cost as much as $2 billion, an unrealistic amount.
Mulhern said NMPF is still committed to improving that formula. “If it’s not 10 percent, is it 8 percent? There are different things we can do. The key thing is that it has to be an effective fix to the program.”
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