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The Prospects for 2013 Farm Bill

The Prospects for 2013 Farm Bill. Minnesota-Wisconsin Dairy Policy Conference April 3, 2013 Rochester, MN. Jim Mulhern National Milk Producers Federation. 2013 Farm Bill Prospects. Budget drives debate How much savings will be required? Politics and policy differences remain

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The Prospects for 2013 Farm Bill

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  1. The Prospects for 2013 Farm Bill Minnesota-Wisconsin Dairy Policy Conference April 3, 2013 Rochester, MN Jim Mulhern National Milk Producers Federation

  2. 2013 Farm Bill Prospects • Budget drives debate • How much savings will be required? • Politics and policy differences remain • SNAP – food stamps • Regional interests • Crop insurances costs • Does agriculture have enough clout? Are farmers motivated? • Delay is costly • $10 Bil less savings in new CBO score

  3. 2012 Farm Bill Debate • Deficit reduction key driver • CBO 10-yr baseline = $995 Bil • Senate-passed bill cut spending by $23 Bil • House Ag bill cut $35 Bil • Main difference – SNAP • Senate - $4 Bil cut • House - $16 Bil cut • Both bills eliminated direct payments • Bill passed Senate 64-35 • Bill passed House Ag Committee • No vote on House floor

  4. Federal Budget Situation • House-passed budget calls for $209 Billion cut in Farm Bill • $160 Billion from SNAP • $31 Billion from commodities/crop insurance • $18 Billion from conservation, energy • Senate-passed budget maintains $23 Billion total cut from 2012 Farm Bill • Sequestration to cut 8.5% from direct payments

  5. 2012 Farm Bill Re-cap • 10-year Spending Baseline for Farm Bill • CBO March 2012 projections 78% for Nutrition Assistance 9% for Crop Insurance 6% for Commodity Programs 7% for Conservation 1% for International Trade

  6. 2012 Farm Bill Re-cap • 10-year Spending Baseline for Ag Programs • CBO, March 2012 Baseline 10-year Dairy baseline = $442 Mil

  7. 2012 Farm Bill Re-cap Change in Outlays Relative to Baseline, FY2013-22

  8. Farm Bill Dairy Provisions • Dairy Security Act Adopted in 2012 House & Senate Farm Bills • Approved in Senate Ag Committee & full Senate • Approved in House Ag Committee • Attempt to strike Market Stabilization Program defeated 29-17 • Bill never came to House floor for vote • Main opposition – House Speaker John Boehner

  9. Current Situation • DSA included in 2013 Senate Farm Bill • No House Farm Bill introduced yet • State of play remains the same • DSA will likely be in both committee’s 2013 Farm Bills • Expect continued efforts to strike Market Stabilization – but we will win

  10. Changes in CBO Dairy Baseline *Actual outlays

  11. Historical (actual) vs. CBO Feb ‘13 Projection

  12. Dairy Security Act Background • Developed by dairy farmers after 2009 dairy economic debacle • Foundation for the Future town hall meetings with dairy producers throughout U.S. • Recognition that margins, not just milk price, critical to profitability • Reduces milk price instability through standby market stabilization program

  13. 15+ years of Instability

  14. While Output Steadily Increases

  15. Dairy Security Act • Voluntary risk management program • Each producer decides whether to enroll • Non-participating producers receive market price • Two key program goals: • Replaces Price Support Program, MILC, DEIP • No payment caps

  16. Dairy Security Act Participating producers pay annual administrative fee based on production:

  17. How Does Margin Protection Work? Two levels of coverage • Supplemental • Optional program available to dairy farmers seeking additional, affordable coverage • Protection covers growth • Premium levels fixed for duration of Farm Bill • Basic • Covers all participating dairy farmers • Protection level and production history fixed for Farm Bill duration

  18. Basic Margin Protection • Pays when average margin below $4.00 for specified two month periods (January-February, March-April, etc.) • Production history: • Highest annual production of the 3 years prior to program going into effect • Payment made on lower of: • 80% of production history, or • Actual milk production

  19. Supplemental Margin Protection • An annual option for all participating producers • Producer chooses coverage level: • 25% to 90% of previous year’s production (minimum participation is 25%) • Allows producer to protect growth • Pays when average margin below selected protection level for specified two month periods (January-February, March-April, etc.) • Net cost depends on milk volume covered, $ level of protection purchased

  20. Supplemental Premiums

  21. What Would Have Happened in 2012?Margin Protection

  22. How Market Stabilization Works • DSA participants are covered by margin protection and market stabilization program • Triggers infrequently, but swiftly • Sends quick market signal to producers when margins are declining • Helps adjust milk production/product availability to improve margins

  23. Margins Below $6 Clear Periods of Industry Distress

  24. How Market Stabilization Works(con’t.) • Uses same margin as DPMPP • Activates if: • Actual margin below $6 or $5 level for 2 consecutive months, or • Actual margin below $4 for one month • Participating producer choose to either: • Reduce production by specified amount, or • Don’t reduce production, take deduction on percentage of base milk production

  25. How Market Stabilization Works(con’t.) Temporary Production Base • Producer annually chooses the production base to be used for market stabilization: • Average of 3 months prior to announcement, or • Same month in previous year

  26. How Market Stabilization Works(con’t.) • Margin $6 or less for 2 consecutive months: • Producers paid the higher of 98% of their milk base or 94% of current milk marketings • Margin $5 or less for 2 consecutive months • Producers paid the higher of 97% of their milk base or 93% of current milk marketings • Margin $4 or less for 1 month • Producers paid the higher of 96% of their base milk marketings or 92% of current milk marketings • USDA uses funds collected to buy dairy products from market to donate to food banks

  27. How Market Stabilization Works(con’t.) Program is designed to protect dairy exports • Market Stabilization suspended if margin: • Above $6.00 for two consecutive months, or • US cheddar or NFDM price is equal to or higher than the World price for 2 consecutive months even when margin less than $6.00 • When margin $5.00 or less and US cheddar or NFDM price is 5% or more above the World price • When $4.00 or less and US cheddar or NFDM price is 7% or more above the World price for 2 consecutive months

  28. What Would Have Happened in 2012?Market Stabilization

  29. DSA Example on a 200 Cow Dairy – What Would Have Happened in 2012? • This farmer: • Has 21,000 Lbs. herd average • 4.2 Million Lbs. production • Uses 2011 for production history for margin protection • Buys $6.50 Supplemental Coverage, on 90% of production • Uses 3 month average (Jan, Feb, Mar) for DMSP base

  30. Scenario 1: 200 Cow Dairy Chooses Not to Reduce, Pays DMSP Fee

  31. Scenario 2: 200 Cow Dairy Chooses Temporary Production Reduction

  32. 2013 Outlook Wrap-up • House Agriculture likely to follow in May-June timeframe • Floor action possible this summer • Final bill could be complete in September • IF there is a Farm Bill, expect DSA in there • Senate Agriculture Committee plans to mark-up 2013 Farm Bill in mid- to late-April

  33. Thank You! Questions?

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