USDA has approved a landmark new revenue insurance plan for dairy producers, and companies are likely to bring out additional new products for the livestock industry now that Congress has lifted an underwriting cap, says USDA’s chief economist.
Robert Johansson, who chairs the Federal Crop Insurance Corp., confirmed to Agri-Pulse that FCIC's board has approved the insurance proposal developed by the American Farm Bureau Federation and Farm Bureau Insurance Services that will allow producers to cover their milk production under the type of revenue policies that have long been available to crops such as corn, soybeans, wheat and cotton.
The plan “allows producers to select a price point that tailors it more closely to the kind of product they're selling, what kind of processor they’re selling to,” said Johansson.
"You’ll see more products coming forward” as insurers respond to Congress eliminating the $20 million limit on how much USDA could spend on livestock policies, he said. The Congressional Budget Office has estimated that lifting the cap would increase USDA spending about $308 million over 10 years, including $36 million in fiscal 2019, which begins Oct. 1.
The department hasn’t hit the cap for a couple of years but insurers still may have been reluctant to propose new insurance plans, knowing that the cap was in place, Johansson said. Policies for cattle feeders, for example, could be sold more widely with the cap gone.
“Certainly, having the cap there has restricted the innovation (in livestock insurance) that we’ve seen in some of the specialty crops and other crop areas,” he said.
There are eight livestock products currently approved by USDA that were subject to the cap: revenue protection policies for feeder cattle, lamb and swine; gross margin policies for cattle, swine and dairy cattle; and whole-farm revenue protection policies that include livestock coverage.
USDA had been asked to deem milk as a crop to avoid the cap on livestock insurance but that action is no longer needed with the limit removed.
Johansson agrees that milk revenue policies could appeal to larger producers who may see limited benefit in the 2014 farm bill’s Margin Protection Program (MPP). The same budget bill that lifted the livestock insurance limit revamped MPP in ways that target the program’s benefit to smaller scale producers. The bill slashed MPP fees for covering the first 5 million pounds of a farm's production, the amount of milk produced by about 220 cows.
USDA’s Risk Management Agency still must approve final details of the Farm Bureau product before it is offered for sale. Farm Bureau officials confirmed that the FCIC board approved the plan, but the group said it could not yet disclose details about the product, citing legal constraints.
An initial outline of the Dairy-RP plan that circulated earlier indicated that 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.)
In other comments, Johansson said that cuts to existing crop insurance products could push some farmers to lower coverage. If producers cut their coverage significantly, Congress will face increased political pressure to pass standalone disaster bills, much as lawmakers did this month for citrus producers in Florida.
“We’re going to go into this mode of going to Congress to look for ad hoc disaster payments to address certain sectors,” said Johansson. “That’s the way we used to address these disasters.”
President Trump’s 2019 budget proposed to slash premium subsidies from 62 percent to 48 percent and to impose a new means test and subsidy cap on the program.
The Office of Management and Budget “was putting together a budget that was intended to address a lot of the budget issues in general and USDA’s budget was part of that. We’re finding savings in ways that aren’t totally unlike we’ve seen in previous years’ budgets,” Johansson said.
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