October 3, 2002

Dairy Farmers To Get Some Relief From Low Milk Prices

Small dairy farms hurt by declining milk prices this year are about to see the benefits from the safety net built into the 2002 farm bill. Dairy farmers can currently sign up at local Farm Service Agency (FSA) to participate in Milk Income Loss Contracts (MILC).

According to Scott Brown, dairy analyst with the University of Missouri Food and Agricultural Policy Research Institute (FAPRI), the U.S. Department of Agriculture will begin making monthly payments as long as the Class I milk price is below $16.94 per hundredweight in Boston, MA. In August the price was $13.73.

The payments will be retroactive to December 1, 2001. The Class I milk price has been below the Boston price every month since the law was enacted.

For a 100-cow dairy herd, payments could amount to approximately $16,000, Brown said. Those checks could start arriving in October.

Under the current conditions, dairy producers will receive $1.45 per hundredweight of milk sold in August.

With its large number of small dairy farms, Missouri will be near the top, nationally, in the percent of the farms eligible for payments," Brown said. "Only Kentucky will have a higher percentage of their dairy farmers eligible for the monthly supplements."

Missouri has 3,700 dairy farms, with an average milking herd of 39 cows. An estimated 90 percent of Missouri dairy farmers will be eligible for payments.

"This program aims to aid smaller dairy producers by imposing a cap on milk eligible for payment," Brown said. "Payments are limited to the first 2.4 million pounds of milk from a farm." The cap will limit only those farms milking around 150 cows or more.

"With low milk prices, Missouri dairy farmers are beginning to feel the stress of lowered cash flow," Brown said. "The safety-net payments will be welcome."

FAPRI projections show that nationally the dairy sector will receive an estimated $4 billion before the program expires in September 2005. For Missouri the estimated benefit will be nearly $77 million.

Dairy farmers who sign up will see a 45- 60-day lag in the monthly milk check adjustments, Brown said.

With the price stress on dairy farms, the FSA started the signup back in August even before all aspects of the program had been worked out, Brown said. "Further clarification will be needed about how larger producers will operate under this program.

Why the price of milk in Boston as a base? "That was the benchmark used in determining the price paid to dairy farmers in the Northeast Dairy Compact under the old farm bill," Brown said. "That payment mechanism was carried forward in the new farm bill and applied nationwide."

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