Economist: Dairy farmers can't survive in the past
With no current Farm Bill, dairy programs, including the Milk Income Loss Contract (MILC) safety net, already have expired.
Published: Oct 16, 2012
Marin Bozic warns farm policies of the past would “wreak havoc” on the dairy industry. Even 2008 farm bill policies fail to fully address today’s dairy economics, he maintains.
Dairy farmers need a program that recognizes rising costs as well as price volatility, according to Bozic, a University of Minnesota assistant professor in dairy foods marketing economics. Lawmakers have designed that program via a proposed 2012 farm bill awaiting House action, he said.
Congressional failure to move a new farm bill or extend now-expired programs could mean January reversion to “permanent” 1949 farm bill provisions, with per-hundredweight price supports in the $30s and “much higher retail prices,” Bozic said. That’s “definitely not appropriate for what we’re trying to achieve going forward,” he told FarmWeek.
Corn and soybean programs continue until August 2013 despite expiration. Dairy programs, including the Milk Income Loss Contract (MILC) safety net, already have expired.
“For annually harvested crops, farmers have a regular season,” Bozic said. “It may be OK for them to wait for a few months and see what new legislation says. Milk is produced continuously, and right now, people are hurting. They can’t wait for a safety net to come next spring.
“Though the milk price is rather high, margins are actually pretty low. The MILC program, one of the support tools people used intensively over the first half of the year, is expired. We’re now in sort of a limbo, where we have no support policy.”
MILC compensated producers when domestic milk prices fell below a specified threshold. A proposed new Livestock Gross Margin (LGM) program would offer insurance-style protection against volatility in milk prices and feed costs.
Bozic co-authored a newly released examination of LGM benefits. When dairy producers attempt to manage their own risk (costs), they tend to focus largely on the next two to four months rather than taking a longer view, he said. That exposes farmers to “availability risk” -- an inability to lock in more favorable long-term margins.
A program like LGM, which helps lock in margins nine to 12 months out, would “remove most of the risk for bad years or even tragic (low-margin) years like 2009,” Bozic said.
“Pretty much everybody agrees we should align our policy toward the new marketplace, to make the U.S. dairy industry a consistent supplier to global markets,” he said. “You can’t do that if you’re relying on price supports vs. margin supports.”
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