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Farm bill offers new insurance to help dairy farmers combat fluctuating milk prices

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Dairy farmers in the north country have long been susceptible to the whims of the national economy; milk prices tank as consumer spending dries up, making it a challenge for small farms here to scrape out a living.

But this year’s proposed farm bill — set to be voted on by the U.S. House of Representatives in July — will include a margin insurance program that will reimburse farmers when milk prices drop below their feed costs for cattle. Milk and feed costs for the program will be determined by national rates.

To boost funding for the new program, the Milk Income Loss Contract Program will be discontinued if the farm bill passes. That program provides a safety net by reimbursing farmers when the milk price drops below a federal target.

In contrast with the MILC program, farmers will be able to participate in the insurance program for free, said Dean Norton, president of the New York Farm Bureau. Farmers will document their annual milk production and feed costs to participate in the program, and reimbursements will be calculated based on the amount they spend on feed costs versus the national prices of milk.

If the price of milk drops $4 per hundredweight below the amount farmers pay for operations, Mr. Norton said, the insurance payments would kick in to help them regain some of their losses.

Calling the program long in the making, Mr. Norton said it should help ensure farms don’t collapse under the burden of an economic downturn by stabilizing their profit margins. In the recession during 2009, for instance, operations at farms statewide plummeted.

“You had producers that were having to borrow money just to pay dairy bills to stay in business and eating into equity,” he said. “Some paid into 50 percent of equity to stay afloat one year, which is quite harrowing, and some weren’t able to.”

Farmers who participate in the program will need to enter a national milk supply management program, which was created to help control the country’s milk supply. That program will set a maximum amount of milk each dairy farm can produce per year; farmers will be fined if they exceed that amount.

The program will “manage the supply during the times of low (milk) demand and feed production so that if you have more milk than you can use, it’s affecting the price.”

Mr. Norton, who owns a dairy farm in Elba, expects the program to have widespread popularity at small and large farms across the state because today’s farmers are doing everything they can to control costs. In many cases, lenders require farmers to have insurance programs before approving loans.

“Risk management as a whole is something that a lot more producers are getting involved in because of the price swings we’ve experienced in the last decade and a half,” he said. “The goal of this program is to fix those swings so that farmers have enough money to pay bills.”

Even if the economy rebounds, there’s always a chance that it could take another catastrophic plunge like it did in 2009. Now, farmers will be able to defend themselves.

“I think farmers will be largely safeguarded by this program,” he said. “The probability of (losing) their equity will be substantially reduced.”

Only about 15 percent of the 230 dairy farms in Jefferson County are signed up for the federal government’s current Livestock Growth Margin Program offered for dairy farmers, said Corey M. Hayes, farm business management educator for Cornell Cooperative Extension of Jefferson County. Because it requires no buy-in fee, the program proposed in the farm bill should be popular among farmers in the north country.

“This is a new age of farming, and farmers are being more aware of their businesses and trying to manage their risks,” he said. “This is another tool to improve if you’re looking to manage feed and milk prices.”

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