Dairy economist Ken Bailey expects the 2002 Farm Bill to be “generous” to Pennsylvania’s small dairy farmers. The bill establishes the new National Dairy Market Loss program, which offers help for farmers coping with volatile milk prices.

The program will cover about 88 percent of the milk produced in Pennsylvania. “Most Pennsylvania farms have fewer than 100 cows, and that’s just the kind of farm Congress intended to support with this program,” Bailey says. “Unlike many western states, we can expect the bulk of our Pennsylvania dairy producers to receive counter-cyclical payments on all of their annual milk sales.”

The program makes a direct payment to farmers in any month when the Class I price of milk in Boston falls below $16.94 per hundred pounds (cwt). The payment rate is equal to 45 percent of the difference between $16.94 and the Boston Class I price.

Bailey estimates that the payment rate under the program will average 97 cents per cwt for the period from December 2001 to September 2002. “The dairy markets have been weak recently,” says Bailey. “That will result in fairly large payment rates under this new program.” His analysis indicates that the Boston Class I price was above $16.94 just 28 percent of the time from January 1997 to December 2001.

“The program is retroactive back to December 2001,” Bailey says, “so most Pennsylvania dairy producers can expect to receive a fairly substantial check from USDA. This check, which is for the transition period from December 2001 until they get the program running, will be a one-time payment. Thereafter, payments will be computed monthly and will be received by dairy producers no later than 60 days from the previous month.”

Payments are limited to the first 2.4 million pounds of milk from a single dairy operation in a given federal fiscal year. That is equivalent to the amount of milk from a 133-cow dairy operation producing 18,000 pounds of milk per cow.

Bailey warns that Pennsylvania dairy farmers should consider the National Dairy Market Loss program as temporary—it is expected to end September 30, 2005. “We should take these payments and focus on making our farms more competitive over the next three years,” he says. “That way, if the program ends, we’ll be better positioned for the future.”

—Gary Abdullah