Nathan Shields, CPA, Jr Manager has been with the firm 6 years and spends a lot of time helping dairy clients understand accounting, taxes and the farm bill.
The 2014 farm bill was signed by President Obama on February 7, 2014. It is an expansive bill that is also known as the “jobs bill,” “innovation bill,” “research bill,” or “conservation bill.”
The two focuses of the bill are to help rural communities and provide food assistance to poor families and children. I am going to focus specifically on the impact the farm bill will have on dairies.
There is a new “Made in Rural America” initiative that will help rural businesses market their products globally. Along with the “Made in Rural America” branding, there will also be five regional forums on rural exports and an “investing in rural America” conference. It is expected that the USDA staff members in each state will be trained to help promote rural exports.
The Dairy Product Support Program (DPPSP) from the 2008 farm bill has been repealed but the permanent DPPSP from the 1949 Agricultural Act is still in effect. The Milk Income Loss Contract (MILC) has been replaced with the new Margin Protection Program for Dairy Producers. The Dairy Export Incentive Program (DEIP) is gone, effective immediately.
The farm bill moves more of the risk, and decisions to the farmer. The dairy section is no different. There are two new programs that will affect dairies. They are:
1. The Margin Protection Program for Dairy Producers (MPP). It is a voluntary program that depending on the level of protection purchased, pays out if a national benchmark for milk income over feed costs falls below the insured level.
2. The Dairy Product Donation Program (DPDP). This program requires the Secretary of Agriculture to immediately procure and distribute certain dairy products when the actual dairy production margin (ADPM) falls below the lowest margin level specified in the MPP.
The national benchmark for the MPP uses a hypothetical, but a nationally representative dairy herd. The calculation is calculated by using the national average price for all grades of milk less a factor of the cost of corn, soybean meal and alfalfa hay. The calculation is as follows:
National average of all classes of milk less 1.0278 x price of corn + 0.00735 x price of soybean meal + 0.0137 x the price of alfalfa hay. This is a calculation that is performed at a national level. It will not be calculated at a regional level. It is assumed that if the national average is “bad,” then each farm will be “bad” and qualify for the payment. They do not guarantee a specific dairy’s margin, but expect that each dairy will follow the national trend.
The cost for a $4.00 cwt income of feed cost (IOFC) is free. You may elect up to $8.00 cwt of coverage in $0.50 increments. The first 4 million pounds have a lower premium than the rest of the milk that you insure. There is also an additional 25% discount on the first 4 million pounds for producers who sign up in 2014 and 2015.