News / Blog

Congress Intervenes Dairy Markets
September 5, 2016

By the time you read this, Congress may have already gotten its way in getting USDA to intervene in dairy markets and USDA may have extended sign-up for the Dairy Margin Protection Program (MPP) beyond the stated Sept. 30 deadline.

After all, it is an election year, goofier than any I’ve seen. So it wouldn’t surprise me that USDA will acquiesce to the request of 60 Congressmen, the National Milk Producers Federation (NMPF) and the American Farm Bureau Federation (AFBF) to buy cheese off the market and bolster milk prices. And USDA, eager to show it is working with farmers, will more likely than not extend the MPP deadline for 2017.

NMPF estimates that spending $100 to $150 million to purchase cheese would take up to 900 million pounds of cheese off the market. That could add $380 million to milk checks. Sounds like a lot (and yes, $380 million is a lot), but it translates to just 16¢ per cwt.

While cynical farmers will scoff at 16¢ per cwt, I doubt any would send the checks back. If nothing else, they would cover the 15¢ per cwt dairy checkoff being paid every month.

The problem with all of this is that Congress mucked this all up in the first place. It’s being urged to do a do-over, but that will only make the dairy program even less likely to succeed in the future.

As we’ve previously reported, Congress reduced the formula to calculate the milk/feed margin by 10% when it was writing the 2014 farm bill. It did so to make the projected costs of the program fit the budget baseline. But the $50 or $100 or $150 million it is now being asked to spend is nearly 5 or 10 or 15 times the amount being spent on MPP indemnity payments this year.

Had Congress left well enough alone, USDA would surely be paying out more in indemnities this year. But those payments would be targeted to those farmers who opted to participate and paid premiums. From a budgetary standpoint, those indemnities would be multiples less than what Congress is now being asked to spend.

And that’s not even the biggest problem. The larger concern is that the water has been so fouled by cynicism no amount of tweaking formulas and premium levels will bring this program back.

The MPP was designed as a risk management program—not a government support program. How many farmers will sign up for a program, even if it is fixed (no double entendre intended), if government steps in and offers everyone relief when budgets bleed red.

So where does that leave us? Will we, again, go back to Commodity Credit Corporation commodity purchases to buoy the market when times get tough? And will that then become a contest between the United States and the European Union (which has subsidized its dairy farmers by hundreds of millions of Euros this year)?

Maybe it’s a little early to call the 2014 farm bill a grand experiment that failed. But by what Congress did and is doing, the chance for success is little to none.

Source – AGWeb Dairy News



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