|Missouri Dairy Business Update|
|Volume 8, Number 11|
Changes in the Milk Income Loss Contract (MILC)
The dairy subtitle of Title I of the Food, Conservation, and Energy Act of 2008 changed the familiar Milk Income Loss Contract (MILC) program in three ways.
Under previous legislation, the MILC program triggered payments to dairy farmers whenever the Class I (fluid milk) price in Boston fell below a target level of $16.94 per hundredweight (equivalent to a Class III price of $13.69). If Class III prices fall below $13.69, the new MILC program will still be triggered.
However, because of higher milk prices, the MILC program has been inactive since early 2007. Much higher feed costs mean that if milk prices fell to the $13.69 Class III target, then dairy farmers would experience significant losses. To address this problem, the new farm bill links the target price to the cost of dairy feed. This means we could see MILC payments even if the Class III price does not drop below $13.69, if feed prices are high.
The new MILC program also raises the percent of the deficiency (difference between the target price and the market price) paid farmers from 34 to 45 percent and elevates the production cap from 2.4 million pounds to 2.985 million pounds per year.
The revised MILC program is a considerable improvement over its predecessor in linking the national target price to feed costs and in raising the payout percentage and the production cap. If payments are triggered, then fewer dairy farmers would be subject to the cap and the payment would be larger. But most projections of milk prices over the next five years suggest that — unless feed prices rise much more than expected — market prices will exceed the feed cost-adjusted target price all or most of the time. This means that MILC payments will not often be triggered. Nonetheless, the changes in MILC make it a much more effective safety net.
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