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Cropp doesn’t see new farm bill before 2013

By Jean Caspers-Simmet

Date Modified: 12/06/2012 2:43 PM

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DUBUQUE, Iowa —What Congress does with the farm bill could affect dairy prices in the coming year, said Bob Cropp, professor emeritus and dairy marketing specialist at the University of Wisconsin-Madison, at last week's Tri-State Agricultural Lender's Seminar in Dubuque.

All provisions of the 2008 farm bill expire Dec. 3. Congress has three options during the lame-duck session, Cropp said. Lawmakers can extend the 2008 farm bill for another year, pass a new bill or do nothing.

"Doing nothing is not a good idea, especially for dairy," Cropp said.

The MIlk Income Loss Contract program and the Dairy Forward Pricing Program both expired Sept. 30. With no DFPP, proprietary milk handlers establishing new forward contracts after Oct. 1 aren't exempt from paying minimum Federal Order prices. Previously established contracts that extend through Sept. 30, 2015 aren't affected.

The Dairy Product Support Program expires Dec. 31. Without a new bill or an extension, dairy reverts back to the 1949 Act, which supports manufacturing use milk at 75 percent to 90 percent of parity. Today, 75 percent of parity would be about $39.

"That would kill demand and exports and create a surplus of milk," Cropp said. "I don't see Congress letting that happen."

The Senate passed its farm bill June 21. The House Agriculture Committee passed its legislation in July but it never went to the House floor.

The bills are similar for dairy, Cropp said. Both have a margin protection program and a dairy market stabilization program. Both options are triggered when the margin, which is the U.S. all-milk price minus total feed costs (calculated using corn, soybean oil meal and alfalfa hay), reaches a certain level.

With the margin protection program, $4 margin insurance is free, but farmers have the option to annually purchase higher margins in 50 cent increments up to $8. Cropp recommends purchasing at least $6 margin insurance. If farmers choose margin protection, Dairy Market Stabilization applies.

The Dairy Market Stabilization Program would be implemented by USDA any time the margin falls below $6 for two consecutive months. It would require dairy producers to either reduce their milk marketings by a minimum of 2 percent from their base production history or have money deducted from their milk check and sent to the government.

In the Senate bill, producers taking the margin protection option can't have livestock gross margin insurance. In the House version, dairy farmers who take the margin protection option can but only after operations not participating in margin protection are enrolled.

Some who don't like the supply management portion of the bills are pushing for the Goodlatte-Scott amendment, Cropp said. That proposal would drop supply management and keep margin protection with some changes from the House/Senate versions.

Cropp's best guess is no new farm bill before 2013.

"Something needs to be done by January or early next year," Cropp said. "If the 2008 farm bill is extended until a new farm bill is passed in 2013, the question for dairy is will the MILC program be extended and if so, at what level?"