1. The Farm Security and Rural Investment Act of 2002 Dairy Provisions Ed Jesse Extension Dairy Marketing Specialist UW-Madison

2. Dairy Title Features Extends $9.90 support price through December 31, 2007. Funds Dairy Countercyclical Payments from December 2001 through September 2005. Continues Dairy Export Incentive and Dairy Indemnity Programs.

3. Dairy Title Features (Continued) Continues processor fluid milk promotion program and requires importers to pay an assessment equivalent to $0.15 per hundredweight NDPR checkoff. Mandates three economic studies. Authorizes (without appropriations) Johnes research program.

4. National Dairy Market Loss Payments: The MILC Program Uses $16.94 target price relative to Boston Class I price to set monthly deficiency payments (45 percent of difference). 2.4 million pound annual (Fiscal Year) payment cap. No limit on total federal expenditures. Retroactive to December 2001.

5. Recent Boston Class I Prices

6. Why Boston? Why $16.94 Last vestiges of the Northeast Compact; demanded by Leahy Awkward and unnecessary. Forget Boston. Forget $16.94. Class I Mover$16.94 + $3.25 (FIXED) - Boston Class I Price = Boston Class I Price = Deficiency (total) X 45% = Payment Rate SO: Payment Rate =.45 X [$16.94 – (Class I Mover + $3.25)] =.45 X [$13.69 – Class I Mover]

7. How Often will Payments be Made?

8. Transition Payments: Transition Period: December 2001 through the month before sign-up. Could be as short as 9 months or as long as 45 months. Transition Payments: Paid at applicable monthly rate on milk sales each month beginning December 2001 through month before sign-up or until 2.4 million pound production cap is exhausted. Production cap is reloaded each fiscal year. For FY 2002, operators can forgo transition payments and take payment for September milk (or 2.4 million pounds, whichever is smaller).

9. Transition Payments –Pragmatically Most dairy farmers will sign up for the MILC program as soon as possible. Most contracts will be signed by the end of September. All but a handful of Wisconsin dairy farmers will take their transition payments in the conventional manner – starting from December 2001. “Regular” monthly payments will apply for August and September (as long as the production cap is not exceeded for the 10 months of FY2002)

10. Monthly Payment Rates for FY2002 10-month average = $1.08 per Cwt.

11. The Production Cap Syndrome

12. Beyond FY2002  Operators can select the month in which they want to begin receiving payments.  Payments are made monthly from the selected month until cap is exhausted.  Operators can change their month as long as the month hasn’t started and they have not yet received any payments.  If no month is selected, payments begin in October.

13. Beyond FY2002 -- Pragmatically  Small operators (who won’t come close to the cap) needn’t select a starting month – it doesn’t matter since they’ll be paid every month anyway.  Large operators should pick October as their starting month for FY2003 and “roll” their selection if it looks like seasonal price patterns will change.  For FY2004, consult your county agent.

14. FY 2003 Situation Payments based on 20,000# annual herd average Predicted Class I Mover is higher of Class III and IV futures on 9/12/02

15. “Normal” Seasonal Price Pattern 22-year annual average: $12.00

16. Is the MILC Program Good for Dairy? YES! Milk prices are abysmal and farmers need help Makes dairy consistent with major crops Differentially benefits smaller farmers NO! Will cause a supply response and keep milk prices low – MILC payments will beget MILC payments Impedes necessary structural adjustment Incompatible with WTO; will cause AMS to exceed authorized level