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1 1 (August 29, 2022)

handle is hein.crs/goveiqc0001 and id is 1 raw text is: Congressional Research Service Informing the legislitive debate since 1914 0 August 29, 2022 Farm Bill Primer: Support for the Dairy Industry The Dairy Margin Coverage (DMC) program was enacted in the 2018 farm bill (P.L. 115-334) to provide income support to dairy operations. DMC replaced the 2014 farm bill's Margin Protection Program (MPP; P.L. 113-79, as amended by the Bipartisan Budget Act of 2018, P.L. 115- 123). Prior to 2014, the U.S. Department of Agriculture (USDA) purchased dairy products to support milk prices at certain levels. Some stakeholders pointed out that support based only on the price of milk failed to account for rising feed costs. In 2014, Congress created a margin program- which defined the margin as the difference between the USDA national all milk price and a calculated feed cost-to provide milk producers optional risk protection on price and feed costs. DMC expires December 31, 2023. DMC Basics The dairy margin program allows milk producers to buy a guaranteed margin for their milk production. For example, if the margin-all milk minus feed cost-amounted to $9.00 per hundredweight (100 pounds; cwt) of milk for a month, producers who selected $9.50 margin coverage would receive a $0.50 per cwt DMC payment on covered production. Under DMC, producers may select margin coverage from $4.00 per cwt up to $9.50 per cwt for annual milk production of 5 million pounds or less (Tier I). For milk production over 5 million pounds (Tier II), the margin coverage tops out at $8.00 per cwt. The $4.00 margin, or catastrophic coverage, is free for all dairy producers. For margin coverage above $4.00, producers pay increasing premium rates as specified in statute (Table 1). A participating dairy producer must have an established milk production history with USDA's Farm Service Agency (FSA) and pay an annual administrative fee of $100. The fee is waived for beginning, limited resource, socially disadvantaged, or veteran producers. Each year, dairy producers participating in DMC choose a margin coverage level and the share of their milk production history to cover-from 5% to 95%-and receive DMC payments for months in which the margin is triggered. The total premium amount that producers pay for margin coverage above $4.00 per cwt is a product of the margin level premium that is set in statute and the share of production history the producer selects. Initially, producers had the option to purchase either Tier I or II margin coverage for the full five years of DMC instead of making an annual selection. In return, milk producers would receive a 25% discount on premium costs. FSA calculates and reports the DMC milk-feed margin each month (Figure 1). If margin payments are triggered, producers are paid for a twelfth of covered annual milk production history. Payments under DMC are subject to sequestration reductions of 5.7% in 2021 and 2022. Table I. DMC and MPP Margin Premium Rates Compared, $ per cwt Tier I 5 million Ibs Tier II > 5 million Ibs Margin MPP DMC MPP DMC $4.00 $0 $0 $0 $0 $4.50 $0 $0.0025 $0.020 $0.0025 $5.00 $0 $0.005 $0.040 $0.005 $5.50 $0.009 $0.030 $0.100 $0.100 $6.00 $0.016 $0.050 $0.155 $0.310 $6.50 $0.040 $0.070 $0.290 $0.650 $7.00 $0.063 $0.080 $0.830 $1.107 $7.50 $0.087 $0.090 $1.060 $1.413 $8.00 $0.142 $0.100 $1.360 $1.813 $8.50 NA $0.105 NA NA $9.00 NA $0.1 10 NA NA $9.50 NA $0.150 NA NA Sources: MPP: Tier I Bipartisan Budget Act (P.L. 1 15-123), Tier II Agricultural Act of 2014 (P.L. 113-79); DMC: Agricultural Improvement Act of 2018 (P.L. 115-334). To date (January 2019-June 2022), there have been 42 months of margin calculations, and producers who opted for a $9.50 margin have received payments in 23 months. Producers selecting margin coverage under $9.50 have received payments in some of those months, particularly when the margin was relatively low in 2021. The annual average monthly margin was $9.61 in 2019, $9.45 in 2020, $6.92 in 2021, and $11.80 through June 2022. Figure I. Monthly MPP and DMC Milk-Feed Cost Margins, January 2014-June 2022, $/cwt $16 $15 $14 $13 $12 $11 $10 $9 $4 -, $3 2014 Jul 2015 Jul 2016 Jul 2017 Jul 2018 Jul 2019 Jul 2020 Jufl 2021 Jul 20fl -MPP -DMC --$4.00 -$8.00 ^ $9.50 Source: USDA, FSA.

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