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Changes to the Dairy Program from the House-Passed Farm Bill

by Levi Russell

H.R. 2 of the 115th Congress, the Agriculture and Nutrition Act of 2018 passed by a 2-vote margin in the house on June 21, 2018. On June 25th it passed a motion to proceed in the Senate and is now being debated. There are some key differences between this bill and the current Senate version I wrote about here. At this time it is not clear which version of the Farm Bill will become law or if other changes will be made. In this post I will go through the changes the House bill makes to what is currently known as the Dairy Margin Protection Program. I will continue to post updates to http://fareblog.uga.edu as the process continues.

There are several changes made to the Dairy Margin Protection Program in the House bill. Some of them address concerns the industry has voiced while others make the program cheaper and more flexible for small and medium size dairies. Below are a list of these changes.

  • The program is renamed the Dairy Risk Management Program and is authorized through 2023
  • Calculation of the Actual Margin remains the same as well as most of the changes made back in February, such as the monthly calculation of the margin and payments
  • Coverage levels of $8.50 and $9.00 are added for Tier I only
  • Producers can buy coverage ranging from 5% to 90% instead of the previous 25% to 90% limits. Coverage can be purchased in 5% increments
  • The table below details the new premiums for Tier I. Tier II premiums are the same as in the 2014 Farm Bill. In general, Tier I premiums are about 1/5 of premiums in the 2014 Farm Bill.
  • The House directs the Secretary of Agriculture to address a few issues with the feed cost component of the margin:
    • The Secretary is to conduct a review of feed cost calculation and to determine whether it reflects actual costs paid by dairy producers
    • A report is to be made on the use of corn silage as a feed ingredient including a report on the cost difference between the use of corn silage and corn
    • NASS will revise monthly alfalfa price survey reports to include high-quality alfalfa prices in the top-five dairy producing states as measured by the volume of milk produced in the previous month
  • The House bill allows producers to use both LGM and Dairy Risk Management, but not on the same production. For example, half of a producers’ production could be covered by LGM while the other half could be covered by the Dairy Risk Management Program
  • Production history updates for the purpose of payment calculations end as of 2018
  • Payments to a dairy are prohibited if the Secretary of Agriculture determines that the dairy business was reorganized expressly for the purpose of qualifying as a new operation
  • Producers have 90 days after the passage of the bill to elect a margin coverage level for the duration of the program

In general these changes make the program less costly for producers to cover 5 million pounds of milk or less. The combination of allowing producers to cover as little as 5% of their production and the significantly lower Tier I premiums accomplish this. In addition, the flexibility to use LGM and the Dairy Risk Management Program is likely to be helpful in managing risk across the entire operation. Time will tell whether the House or Senate versions or some compromise between the two make it into law. Subscribe to the blog in the upper-left corner if you’d like to receive updates in your email!