BREAKING NEWS: USDA Announces Improvements to the Dairy Safety Net and New Pandemic Market Volatility Assistance

19 August 2021

The U.S. Department of Agriculture (USDA) today announced the details of the Pandemic Market Volatility Assistance Program as part of meetings with farmers and a tour of farms with Senator Leahy. In June, Secretary Vilsack committed to providing additional pandemic assistance for dairy farmers in an exchange at a hearing with Senate Appropriations Committee Chairman Leahy. Through the program, USDA will provide about $350 million in pandemic assistance payments to dairy farmers who received a lower value for their products due to market abnormalities caused by the pandemic. The assistance is part of a larger package including permanent improvements to the Dairy Margin Coverage safety net program.

Under the Pandemic Market Volatility Assistance Program, payments will reimburse qualified dairy farmers for 80 percent of the revenue difference per month based on an annual production of up to 5 million pounds of milk marketed and on fluid milk sales from July through December 2020. The payment rate will vary by region based on the actual losses on pooled milk related to price volatility. USDA will make payments through agreements with independent handlers and cooperatives. Handlers and cooperatives will distribute the monies on the same basis July - December 2020 payments were made to their dairy farmer suppliers and a formula set by USDA. USDA will reimburse handlers and cooperatives for allowed administrative costs.

USDA will contact eligible handlers and cooperatives to notify them of the opportunity to participate in the Program. USDA will distribute payments to participating handlers within 60 days of entering into an agreement. Once funding is provided, a handler will have 30 days to distribute monies to qualifying dairy farmers. As part of the program, handlers also will provide virtual or in-person education to dairy farmers on a variety of dairy topics available from USDA or other sources. A handler will have until March 1, 2022 to directly provide educational opportunities to dairy farmers.

The program is part of $6 billion of pandemic assistance USDA announced in March to address a number of gaps and disparities in previous rounds of assistance. Other pandemic assistance to dairy farmers includes $400 million for a new Dairy Donation Program to address food insecurity and mitigate food waste and loss; and $580 million for Supplemental Dairy Margin Coverage for small and medium farms.

Outside the pandemic assistance, USDA will also make improvements to the Dairy Margin Coverage safety net program updating the feed cost formula to better reflect the actual cost dairy farmers pay for high quality alfalfa. This change will be retroactive to January 2020 and is expected to provide additional retroactive payments of about $100 million for 2020 and 2021. Unlike the pandemic assistance, this change will also be part of the permanent safety net and USDA estimates it will average about $80 million per year or approximately $800 million over ten years for dairy headed into the upcoming Farm Bill. Full details on these additional actions to support dairy farmers will be provided when regulations are published in the coming weeks. Dairy farmers should wait until these details are available to contact their local USDA Service Center for more information.

HighGround’s Take:

• Smaller dairy farms will receive a direct government payment yet again, which will support milk production that otherwise might have contracted as margins and profitability tighten. The payments will benefit farms producing less than five million pounds of milk per year (around 250 cows) and represent a clear choice by USDA to focus on support for smaller farms, as represented by the announcement being made in Vermont with Senator Leahy.
• While payments are helpful to smaller, struggling farms, it is not likely that this announcement is material enough to significantly impact market sentiment. Regardless, it is not bullish and will slightly boost milk production expectations into 2022.
• The improvements to the Dairy Margin Coverage program follow a December stimulus bill provision authorizing additional coverage payments for farms producing less than five million pounds of milk per year (the same sized farms focused on in today's announcement). The supplemental coverage announced then increased base payments to reflect actual 2019 production instead of the earlier base from 2011-2013. These additional changes announced today that better reflect alfalfa hay costs are yet another supportive measure focused on smaller dairies.
  

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