The stalled farm bill may cost small dairy farmers in the state hundreds of thousands of dollars in lost government subsidy payments, and it could double the cost of a gallon of milk in stores.
The Milk Income Loss Contract program ended Sept. 30. It was a safety net providing payments when national milk prices drop in contrast to feed costs. When the new farm bill did not pass this year, and the old one expired, the MILC program halted and was not replaced.
Roger Scheibe, executive director of South Dakota Dairy Producers and director of industry outreach for the Midwest Dairy Association, said dairy farmers will see the difference in their bank accounts.
“I would say in South Dakota … there’s probably about 250 producers directly impacted by this,” Scheibe said. “It’s definitely going to hurt their revenue stream.”
The federal government, in an effort to maintain dependable production and reliable prices for milk, has long offered milk subsidy programs. Without a farm bill by the end of this year, an old permanent law would take effect. The Congressional Research Service says the government would be mandated to set crop and milk prices at “parity” — the purchasing power of those crops in 1910-1914, when, according to a 1930s study, a farmer’s earning power and purchasing power were equal.
MILC, and other dairy support programs, have prevented imposition of parity. But it could be imposed in 2013 if a new farm bill isn’t passed.
U.S. Agriculture Secretary Tom Vilsack said that could raise the price of milk in stores to $6 a gallon (milk was selling for $3.50 Monday at a Mitchell grocery store). The prices of milk, cheese and butter are all on the increase.
The dairy industry is undergoing dramatic changes, with far fewer dairy farms than in the past. There are about 51,000 dairy producers in the nation and about 350 remaining in South Dakota.
Most of the milk comes from large dairies; about 65 percent of the milk produced in South Dakota comes from 15 percent of the dairies, according to dairy advocates. But the smaller dairies, where dozens, not hundreds, of cattle are milked still produce and sell milk in South Dakota.
They also received MILC payments, but that ended when the farm bill expired. Most other food and farm programs will continue uninterrupted through at least the end of the year because they’re based on the crop year or appropriations were already made for them.
The loss of the price support program comes at a difficult time, with feed prices spiking due to the drought and cattle producing less milk if they are fed less. Dairy farmers are selling cattle for slaughter. Nationally, the entire American dairy herd is expected to drop by 1.1 percent to 9.11 million head in 2013, according to the U.S. Department of Agriculture.
Fewer cows means less milk, which is already translating to higher prices in stores for milk, cheese and butter. According to dairyreporter.com, that is expected to continue.
$3.2 million in 2012
Farm Service Agency Program Director Lynn Stoltenburg, who is based in Huron, said MILC checks for August are still being issued and September payments will be sent out in November.
“We’re always basically two months behind,” Stoltenburg said.
The FSA examines feed costs and compares it to milk prices to determine what subsidies will be awarded during the fiscal year, which runs from October to September.
In the 2009 fiscal year, the FSA dispersed $7 million in South Dakota. In 2010, more than $1 million was handed out, while in 2011 milk prices were up and no payments were issued, he said. During the 2012 fiscal year, $3.2 million was distributed.
Stoltenburg said the FSA has distributed about $235,000 per month in the past four years. If no new safety net program is put into place, and dairy farmers are not reimbursed retroactively, that means South Dakota dairy producers could theoretically lose around $700,000 in the last three months of this year.
Jim Neugebauer, who milks about 60 cows on a farm on the Davison-Douglas county line 22 miles southwest of Mitchell, said it will have an impact on him.
“Well, it’s not going to be good,” Neugebauer said. “It’s going to hurt, but we’re going to survive.
“It was a feed adjuster that brought us extra money. It’s not like it will stop us. It’s like your gas, adding $1 on top of it.”
Unlike the large, “factory farm” dairies that operate almost like a plant, with numerous employees and hundreds of cows, smaller operations maintain the look and feel of traditional dairy farms.
Neugebauer operates a farm with several buildings scattered throughout the property. He milks six cows at a time in tight quarters.
A TV is mounted in the milking area so Neugebauer can watch it while he waits for the milkers to drain the white liquid from his Holsteins. On the roof of a barn, the slogan “Got Milk?” is painted in huge white letters.
Marv Post is the chairman of the South Dakota Dairy Producers and milks 60 cows near Volga in Brookings County.
“I can only speak for myself. It won’t affect me,” Post said. “It’s not a large amount.”
Post said his payment for August was $1,600, while he made $20,000 in gross dairy sales. He said he realizes there may not be payments for some time.
“Right now there is no safety net for the dairy industry,” he said.
Post said the MILC program will likely be replaced by a margin insurance program similar to crop insurance.
“If the cost of production was greater than $4 below the cost of milk, it would kick in,” he said.
Another component in that proposed milk stabilization program to assist producers is a mandate to cut production for a period to reduce supply and increase the price.
The program would only be for producers who voluntarily participate in it, and Post said he will not, since he doesn’t want to be forced to reduce production.
“In other words, I’m not in favor of management control on this farm,” he said. “I would ride the market up and down, whatever it would be.”
David Skaggs, the South Dakota Department of Agriculture’s dairy development specialist, said he hasn’t paid close attention to the political debate but feels nothing is set in stone.
“They’re exploring it but it’s all over the board,” Skaggs said.
New farm bill only answer
South Dakota Secretary of Agriculture Walt Bones said there is only one way to repair the damage.
“Other than enacting a new farm bill, nothing that I know of,” Bones said in an email response to questions.
The expiration of the MILC program will impact the smaller producers more than the larger producers, Bones said, because the MILC payment has a cap determined by volume. The larger producers meet that cap in a short time, he said, and max out their payment.
“The smaller producers can get a payment every month and not reach the cap,” Bones said in the email. “So while most of the larger producers have reached and received their payment, the smaller dairymen may miss out on some of the later-year payments.”
Bones is a co-owner of Turner County Dairy, a large dairy operation in southeast South Dakota. He said the dairy reaches its cap in about two weeks.
Rep. Kristi Noem said passing the farm bill is the only solution.
“Getting a farm bill done remains my top priority, and that is the single best way to support our dairy producers,” Noem said in an email to The Daily Republic. “The bill we passed out of the House Agriculture Committee included an uninterrupted, continuous safety net for dairy, and I will work to include retroactive coverage for those experiencing disruptions in the final version of the farm bill.”
Democratic congressional candidate Matt Varilek said the stalled farm bill is now being felt in South Dakota.
“The expired dairy program and all the expired livestock disaster programs are just two initial impacts of the U.S. House’s decision to let the farm bill expire,” Varilek said in an email to The Daily Republic. “The impacts will only grow the longer Congresswoman Noem and the rest of the House leadership team fails to bring the farm bill up for a vote.
Perry Plumart, Sen. Tim Johnson’s communications director, said the stalled farm bill has come back to haunt producers and politicians. “The House’s failure to pass a farm bill has left dairy producers without a safety net,” Plumart said.
