Dairy program addresses market volatility

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by Sally Colby

Paul Bleiberg, senior vice president for government affairs with NMPF, provided an overview of the new Pandemic Market Volatility Assistance Program during a recent call with the Center for Dairy Excellence.

“The Pandemic Market Volatility Assistance Program (PMVAP) rolled out about a month ago and is intended to partially reimburse dairy farmers around the country for some very unusual price-related losses on account of a one-two punch,” said Bleiberg. “First, a policy change was made in the 2018 Farm Bill to the Class I mover, and subsequently to the federal government dairy product purchase balance that was made last year with a heavy focus on cheese.” Bleiberg noted that the two actions resulted in unusual milk price inversions that caused Class I skim milk prices to average $3.56/cwt. lower during the second half of last year than they would have under the previous Class I mover.

The Class I mover was previously set as the higher of the Class III or Class IV monthly price before it was changed in the 2018 Farm Bill. Those changes were made in response to concerns raised by private fluid handlers in discussions about the ability to manage risk. “The change was made that switched the mover from being based on the higher of those two prices to the average of Class III and Class IV with 74 cents added to that average each month,” said Bleiberg. “The 74 cents represented the average difference over the 17-year time horizon from the last time we undercut federal order reform until 2017, when negotiations were looking at the average difference of the old mover and the proposed new mover to make sure the new one would stay revenue-neutral for farmers.” He added that dairy farmer co-ops accepted the Farm Bill change based on revenue neutrality so farmers would not lose Class I skim revenue, and Congress enacted it on that basis.

During the first several months of 2019, Bleiberg said the new mover performed as expected, but in 2020, with the Food Box program response to the pandemic so heavily tilted toward cheese, there was a large gap between Class III and Class IV prices. As a result, even with 74 cents added to the average, the price was not going to be close to Class III. “By our estimate, dairy farmers lost about $750 million in Class I skim milk revenue, much of it being during that period,” said Bleiberg. “We’ve spent the better part of the last year trying to figure out how to reimburse that loss because it was a loss that was never intended to occur, and what needs to be done to reform the Class I mover to make sure a repeat of this never happens again.”

The PMVAP doesn’t change the underlying Class I mover formula, and Bleiberg said reforming it for the future is a separate issue that will occur during industry discussions with Congress and USDA. “What the new program does deal with is a partial reimbursement of the losses that were incurred last year,” he said. “Individual handlers (cooperatives or private) have the opportunity to enter into agreements with the Department of Agriculture, and USDA will reimburse the handlers for losses on their pooled milk volume for July to December 2020 – the time period when losses were most significant.”

Similar to other pandemic programs, the reimbursement will be up to 80% of losses on up to five million pounds of production. Monthly rates will vary depending on differences in orders, the Class I skim milk utilization rate in those orders and the 80% factor. Not every farmer will receive the same payment because the program approximates last year’s loss on pooled milk. Rather than signing up for the program through FSA, the program will run through the handler.

The program is expected to provide about $350 million of the roughly $750 million NMPF has estimated, and will work with Congress to fill the losses. The NMPF also plans to review reforms for the Class I mover.

Erin Taylor, USDA-AMS, discussed some of the operational details of the program, including the fact that PMVAP is not a federal order program. While federal order data will be used to formulate producer payments, the program is administered via USDA rather than through local or federal offices.

Producers must meet one of two criteria to be eligible for a payment: The farm must have an adjusted gross income (AGI) that meets the requirements of less than $900,000 average for tax years 2015, 2017 and 2018; or 75% of AGI comes from farming, ranching or forestry-related activities. “This is the same AGI threshold that is used by FSA when administering the Coronavirus Food Assistance Program (CFAP 2),” said Taylor. “If you received a CFAP 2 payment, you meet the AGI requirements of this program and should be easily able to attest to your handler about that.” Handlers are responsible for obtaining attestation from producers and will be making contact in the next few weeks.

“Only milk that was pooled under federal order during July through December 2020 is eligible to be included in the calculation,” Taylor reiterated. “You as a producer may not know whether your handler or co-op pooled your milk in any given month. This is the reason we are facilitating these payments through agreements with handlers and co-ops rather than having you go to FSA.”

Taylor said numerous factors go into determining what producers receive, which is why AMS hasn’t issued payments on a producer level. One variable is the number of producers and pounds of eligible pooled milk for the handler or co-op. Individuals that do not meet the AGI may possibly not receive a payment, so that milk is not included in the calculation. Milk from producers who decline to participate in the program is not included.

“Another factor we have to consider is whether your handler or co-op originally paid a blended price to its producers that reflected both the pooled and non-pooled revenue it received during the month,” said Taylor. “If that was done originally, then in those months, pooled and non-pooled producers were impacted by the Class I skim milk price formula. In these circumstances, handlers or co-ops are being instructed to re-blend the pandemic money over both their pooled and non-pooled pounds each month. Therefore, producers whose milk was not pooled may be eligible to receive a payment but those producers still have to meet the AGI requirement and there’s still a five million pound threshold.”

Taylor stressed that USDA is working closely with handlers and co-ops to determine producer payments based on all applicable factors. In addition, handlers and co-ops will be audited to ensure producer payments are made correctly.

Additional program details are available at ams.usda.gov/pmvap.

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