Tuesday, April 10, 2012

Government Subsidized Ethanol Leads to Government Subsidized Milk

For the first time in two years, the U.S. government will make payments to dairy producers through the Milk Income Loss Contract (MILC) program. The MILC program began with the 2003 Farm Bill and is designed to supplement the price dairy farmers are paid for milk when the milk price drops too low or feed prices get too high or a combination of both.

MILC payments are calculated each month using the latest milk price and feed cost. Payments are triggered when the Boston Class I milk price falls below $16.94/cwt (hundred pounds), after adjustment for the cost of feed. Milk prices have remained above the $16.94 base used in the MILC calculation, but the increase in feed prices has triggered payments.

A view from the tractor while feeding our cows
Payments under the MILC program are limited by production: currently, producers are eligible to receive payments on up to 2.985 million pounds per fiscal year. Larger producers must choose the month for which they want to start receiving payments; after that, they receive payments for all months until they reach their cap. Currently, MILC payments are projected from February through August 2012. The lowest payment is projected for February at $.35/cwt and the highest in May at $1.03/cwt.

The price we are receiving for milk would be adequate to cover the cost of production and make a good living if the price of feed was not so high. Why are feed prices so high? The main reason is ethanol.

Currently, 40% of the U.S. corn crop is used to produce ethanol. The increased demand for corn created by ethanol has pushed the corn price from historic levels of $2-$3/bushel to $6-$7/bushel today. In 2011, dairy farmers faced the highest feed costs in history. In the last two years, more corn was used to produce ethanol than cattle feed. See my post Ending the Ethanol Debacle.

Milk prices paid to dairymen reached record highs in 2011, so the record high cost of feed was more manageable than it is this year with lower milk prices. For a dairy our size, we’ll receive MILC payments for about 2 ½ months of milk production.

I wonder what the agriculture industry would be like today if the federal government was not so involved? Most likely the free market would be operating as it should and we would all be better off. To recap, the heavily subsidized ethanol industry has increased the price of subsidized corn which now makes it necessary for the federal government to subsidize the price of milk. Is this sound government or grossly negligent?

4 comments:

  1. great writing on this topic. I am always excited to read your posts as they are so thoughtful, yet passionate. Also, enjoy the photos of the farm. I no longer live on a farm, but staying in touch with dairy farmers gives me real pleasure. thanks for doing blogging.

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  2. Thank you for your comment Lorraine!

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  3. I appreciate and share your frustration with the inequities that have occurred between grain farming and livestock (especially dairy) farming. Just surviving on a dairy farm has become an accomplishment while our grain farming neighbors have become multi-millionaires. When it comes to being competitive on bidding for land or machinery, dairy farmers have been shoved under the bus. However, I don't think it's fair to put all the blame on feed prices and ethanol policy. With the global energy situation, I don't think ethanol's going to go away. Most of the blame falls on ourselves and our unwillingness to align supply with demand. 2011 proves we can still be profitable milking cows when feed prices are high. If only we could have more than one year like that before the milk price crashes again!
    I'd like to respectfully suggest that a 600 cow family dairy with a 400 acre land base may be better off to substantially reduce cow numbers and sell some grain and participate in the good times. MILC would actually serve as more of a safety net. Forages would not have to be purchased. What "free market" forces drive a farm like that to make a decision to expand cow numbers in times of high feed prices and low milk futures? I realize one farm would not make a difference, but this mindset of constant expansion is widespread in our industry.
    On a related note, I really believe that a substantial part of the organic movement is driven not by people who have fallen for the anti-chemical, antibiotic, and hormone propaganda, but by people who want to support an animal agriculture that is land-based in numbers, growing forages in rotation with crops fully utilizing manure nutrients, and actually operated by family labor without a lot of full-time hired help--an agriculture without a constant hunger for growth in size, an agriculture that supports and celebrates first-generation farmers as well as third or fifth or whatever. Unfortunately, organic is their only option because the rest of agriculture has abandoned these ideas in favor of greed.

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  4. I agree it’s difficult to be profitable in the dairy industry when the milk price swings up and down so quickly and dramatically. We U.S. dairy farmers produce a quality product that has proven to be demanded all over the world. It’s essential that processors make products U.S. and international customer’s desire. Providing products people want would stabilize the demand for U.S. dairy products and create a more consistent price for dairy producers.

    The agriculture you describe exists on the majority of farms in this nation; growing forages in rotation, utilizing manure nutrients, operating a family farm, and celebrating several generations on the farm. I think having a farm that is large enough to hire employees is a positive because the farm not only supports our family but the families our employees. Creating jobs is a good thing. We purchase many good and services locally which creates opportunities for other businesses in our community.

    As input costs increase and profit margins decrease, each family must make choices about how to sustain the farm. For our family farm, we believe the best way to successfully operate is to milk the number of cows our facility was built to handle, farm enough land to raise the majority of our own forages and we’ve incorporated agritourism to share our farm with the public. Our goal is to be dairy farmers long-term. Each family must make choices that suit their situation.

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Thank you for reading my blog and taking the time to comment! I’m opening the doors of our farm to share with you and enjoy engaging in discussion. Please be respectful in your comments. I reserve the right to remove posts that include name calling, slander, and vulgar language or contain links to websites that assault animal agriculture.

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