May 9, 2002

NDSU Economist Outlines Key Dairy Provisions of the 2002 Farm Bill

The new Dairy Market Loss Assistance Program, part of the 2002 Farm Bill will be of more benefit to the smaller-sized dairy farms of the Midwest and Northeast regions, than to the larger dairies found in the West and Southwest, says a North Dakota State University agricultural economist.

"Most dairy farms in these producing regions are small enough that their entire production will be supported under this program," explains Dwight Aakre of the NDSU Extension Service. "In contrast, most of the dairy operations in the West and Southwest far exceed the maximum production level eligible for these support payments and will receive the payments on only a portion of their production."

The Farm Security and Rural Investment Act of 2002 (2002 Farm Bill), creates the National Dairy Market Loss Assistance Program. This program will cover the period from Dec 1, 2001 through Sept. 30, 2005. Under the program, participating dairy producers nationwide will receive monthly payments equal to 45 percent of the difference between $16.94 and the price per hundredweight of Class I fluid milk in Boston. No payments will be made for months when the fluid milk price in Boston is $16.94 or higher. Payments will be made not later than 60 days after the end of any month for which a payment is due.

Dairy producers will need to sign up for this program at their county Farm Service Agency office. However sign-up dates and other details are not available yet. Aakre says it is anticipated that the sign-up period will be later this summer and payments will be retroactive to Dec. 1. "The Class I fluid milk price in Boston has been below $16.94 the entire period of December to May, so a payment should be triggered for all six months," he says.

For planning purposes, Aakre outlined Boston price levels and dairy market loss payments for that period. In December, the Boston price per hundredweight of milk was $15.23, triggering a payment of 77 cents. In January, the price was $15.21 with a projected payment of 78 cents. For February the price was $15.20 with a payment of 78 cents. In March, April and May, prices were 14.87, $14.72 and $14.51, respectively, with projected payments of 93 cents, $1 and $1.09.

Producers, on an operation by operation basis, may receive payments on no more than 2.4 million pounds of milk marketed per year, Aakre says. "That represents approximately a 130 cow dairy herd based on the national average milk production per cow. There is also a limit of $20,000 per producer per year."

"There are important questions yet to be answered, such as who qualifies as a person for payment purposes. Many dairy operations are multiple family operations and will likely have more than one family member qualify as eligible producers," Aakre says.

Another yet-to-be-determined point is how total pounds eligible for payment will be counted. "Milk prices normally exhibit a seasonal price pattern, as do most agricultural commodities," Aakre says. "Therefore, it is expected that the Class I Boston price may be high enough to not result in a payment for some months. With an annual limit on pounds of milk eligible for payment, does this also imply a monthly limit? If it does, the approximate 130-cow herd size will be the upper limit. If the limit is simply an annual limit, then a producer selling 2.4 million pounds per month would earn the maximum payment in one month. The question for larger producers would be one of, do you use up all of your limit as soon as a payment is triggered or spread it out over more months?"

As with the entire farm bill, USDA will answer these and many other questions when they write the regulations to implement the intent of Congress. That must be completed before producers can sign up for this as well as other components of this farm program.

Another key dairy provision of the 2002 farm bill is a continuation of the support price of $9.90/cwt on a 3.67 percent milk fat basis. The Secretary of Agriculture is authorized to purchase butter, nonfat dry milk powder or cheese at established prices in order to maintain the $9.90/cwt support price. This support price provision is authorized through Dec. 31, 2007.

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Source: Dwight Aakre, (701) 231-7378, daakre@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu

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