Farm Bill 2002

Milk Income Losss Contract Talking Points

August 14, 2002

The Milk Income Loss Contract (MILC) program is a safety net for dairy farmers established under the 2002 farm bill. FSA will provide payments to eligible dairy farms when the Boston Class I milk price is below $16.94 per hundredweight (cwt.). MILC payments will be issued on a monthly basis.

The payment rate is determined on a monthly basis by:

• Subtracting the Boston Class I price per cwt. from $16.94, then
• Multiplying the difference by 45%
• The resulting figure is multiplied by each producer's eligible production for that month.

Essentially, when the market price for milk goes up, the program payment rate drops.

MILC is available to producers on dairy operations throughout the U.S. if the operation produces and markets milk during the period of December 1, 2001 - September 30, 2005.

This program will benefit all dairy operations, regardless of size. Eligible milk production for payment purposes will not exceed 2.4 million pounds per operation. That is the equivalent of a 130-cow dairy with a herd average of approximately 18,462 pounds/cow.

The sign up began August 13, 2001. The sign up period is on a continuous basis and ends the final day of the program, which is September 30, 2005.

Payments will not be issued at the time of enrollment. Payments are tentatively scheduled to be made in mid-October.

Operations must provide production records to FSA in order to receive a payment. Examples of these records include payment stubs from milk co-ops, tank records, milk handler records, daily milk marketings, or copies of any payments received as compensation from other sources.

Farmers will receive what is called a 'transition payment' for milk marketed from December 2001 until the time the dairy operation enters into a contract.

Note: Milk co-ops send milk statements to farmers for their previous month's production. If a farmer applies on September 1, 2002, he will only have production records for milk marketed through July because August's production receipts won't be available until the middle of September.

The transition payment will be a single payment. After that, the producer will be paid on a monthly basis whenever the Class I price drops below $16.94 a hundredweight. Producers must bring their production records into the office in order to be paid.

Important Dates

Although the sign-up is continuous, we want to stress two very important deadlines.

1. The first is August 30. This deadline is important to any operation that produces more than 2.4 million pounds of milk in a month (or a period of less than two months).
2. • These farmers can elect not to receive their transition payment (December 2001 - August 2002). Instead, they would receive a payment for September's production only. Farmers that reach the production cap in a span of less than two months might want to utilize this option because the September program rate will be higher than the December 2001 rate of 77 cents. Since a farm can not be paid for more than 2.4 million pounds of milk in one fiscal year, and the FSA fiscal year ends September 30, farmers would receive a higher payment for September than they would for the transition period.
   • We don't know what the September rate is, but it will be higher than 77 cents. The August rate is estimated at $1.44, which is almost twice as much as the December rate of 77 cents. Market prices may go up in September, but they won't rise enough to offset the gamble.
   • Farmers need to look at their production and calculate if they would be better off with the transition payment or the September payment.
   • Dairies that produce less than 2.4 million pounds in a year would not want to use this option. They would want to receive a payment for every pound of milk produced throughout the transition period.
3. The second deadline farmers should be aware of is September 30.
• This is the final day farmers can select a 'start month' to begin receiving payments for the next fiscal year. Operations that do not select a start month to begin receiving payment are required to receive their payments starting with their October production (the beginning of the FSA fiscal year).
• This date is important for those farms that produce more than 2.4 million pounds in a year. Because market prices are traditionally lower from late spring through early fall, farmers can receive a higher program rate during this time to help compensate for depressed seasonal prices.
• Once farmers select a month to begin receiving payment, FSA will continue to issue payments for each consecutive month until either:
  

  • The 2.4 million pound cap is reached, or
  • The fiscal year ends (September)

• Again, dairies producing less than 2.4 million pounds will not be concerned with this option. They will select October for their starting month so they receive a payment for all of their milk marketings.

Selecting a Start Month and Changing the Start Month

Farmers that select a start month before the beginning of the fiscal year have the option of changing the start month during the fiscal year. However, the change must take place before the first day of the month designated on their contract. Otherwise the starting month cannot be changed until the next fiscal year. (Example

A farmer selected March as his start month. On March 5th, he decides to delay the start month until April. He is not allowed to make the change because the change was not initiated before March 1.)

The start month must be selected before the beginning of the month for which payments are sought. (Example - Farmer wants to receive payments beginning in June. He must make the request by May 31.)

An operation cannot select a month for payment:

• That has already begun
• That has already past
• When no milk production was produced.

All producers involved in the operation must agree to the month designated.

A farmer that enters into a contract after October 1, 2002 will receive a transition payment based on December-September's marketings. He will not select a start month for the 2002 year because the fiscal yer has already begun, but he will select a start month for future fiscal years.

IMPORTANT: The dairy operation assumes the risk of not reaching the maximum payment quantity based on the month selected by the operation. For example, a producer calculates he will produce over 2.4 million pounds of milk between July and September. If he produces only 2 million pounds of milk during this period, no other payments will be issued. Reason: Start months must be selected before the beginning of the month for which payments are sought.

The sign up period is continuous, beginning August 13, 2002 and ending September 30, 2005. A farmer could wait until that day to enter into a contract. However, the farmer's start months would begin at the beginning of the fiscal year. The payment would be based on the following:

• Fiscal year 2002 - Payments begin with December of 2001 and end the earlier of September 2002 or once the 2.4 million pound cap is reached.
• Fiscal year 2003-2005 - Payments would begin with October's production and end the earlier of each fiscal year (September) or when the 2.4 million cap is reached in a fiscal year.

Eligible Dairy Operation

Operations eligible to receive MILC payments must:

• Have produced and marketed milk commercially in the U.S. anytime during the period of December 1, 2001, through September 30, 2005
• Signed a MILC contract during the sign-up period
• Provide production evidence of monthly milk marketings to FSA
• Include milk marketings from all persons that were involved in the dairy operation during the contract period
• Certify compliance with the highly erodible land conservation (HELC) and wetland conservation (WC) provisions on AD-1026.

Other Items

MILC payments are subject to offsets. Payments may also be assigned.

Restructuring a dairy operation for the sole purpose of receiving multiple payments is prohibited. If a modification to an operation occurs, it will not take effect until the first day of the fiscal year following the month the office received notification of the change.

Producers must notify FSA immediately of any changes that may affect their MILC payment.

FSA has 60 days after the end of the month that a farmer signs a contract to pay the farmer. (Contract signed July 15. Payment is to be issued by September 30.)

New York Dairy Industry Information

According to the New York Ag Statistic Service, there are an estimated 7,700 dairy farms in the Empire State. Approximately 1,400 dairies milk more than 130 cows.

Dairy farmers in New York received an average of $11.60 per hundredweight of milk sold during July 2002, down 90 cents from a month earlier and $5.40 below last July. (July 2002 press release from NASS)

In July of 2001, the average New York cow produced 1,520 pounds of milk. Taking the 673,000 cows in NY in July of 2001, divided by the 7,900 dairy farms in NY, means there are an average of 85 cows per farm. At 85 cows shipping 15.2 cwt.'s, at $5.40 cwt. less value of milk in 2002 from 2001, means the average farm's income in July of 2002 was down $6,977 from July of 2001. (85 X 15.2) X $5.4 = $6,977.

Some farmers in New York receive as much as $1.00 less than the Boston class-I milk price. (Bob Wellington, economist with Agri-Mark)

New England Dairy Information

According to NASS, there are 3150 dairy farms in New England as of June 1, 2001. Of these farms, 447 had more than 135 cows. Approximately 14% of New England dairies produce more than 2.4 million pounds of milk.

Connecticut and Rhode Island are combined due to confidentiality.

In July of 2001, the average Vermont cow produced 1,510 pounds of milk. Taking the 152,000 cows producing milk in Vermont during last July, divided by the 1,600 dairies, means there are an average of 95 cows per farm. A 95-cow farm shipping an average of 15.2 cwt.'s and receiving $4.50 less for their 2002 milk than the 2001 milk means the average farm's income was down $7,797.60 from July of 2001. (95 cows X 15.2 cwt. X $4.50 = $6,498)

Dairy farmers in New England received an average of $12.30 per hundredweight of milk sold during June 2002, down $4.50 from a year ago.

General Dairy Information

Farmers are paid for their milk in hundredweights (cwt.). One hundred (100) pounds of milk is equal to 11.6 gallons of milk.

Farmers are receiving the lowest milk prices of the year. Milk prices haven't been this low since July of 1991. The Class I milk at that time was $13.47.

The Class I milk prices has been below $16.94 since November of 2001.

The 16.94 target price is the same price that was used under the Northeast Dairy Compact.

Estimated Payment Rates

These numbers are from the federal milk marketing order website. www.fmmone.com/Northeast_Order_Prices/New_Prices_main.htm#Advance

Definitions

Dairy operation - A person or group of persons who as a single unit, as determined by FSA, produce and market milk commercially and whose production facilities are located in the U.S.

Producer - Producer is any individual, group of individuals, partnership, corporation, estate, trust, association, cooperative, or other business enterprise or other legal entity who is, or whose members are, a citizen of, or legal resident alien or aliens in the United States; who directly or indirectly, shares in the risk of producing milk; and makes contributions including land, labor, management, equipment, or capital to the dairy farming operation that are at least commensurate with the share of the individual or entity of the proceeds of this operation.

Note: Cows must produce milk for this program. Sheep, goats or other animal milk is not permitted.

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