Some people procrastinate by watching movies, listening to music, going out with friends or cooking. I’ve been under a lot of pressure with deadlines for several demand-related projects, and I found out tonight that analyzing the latest iteration of dairy policy bill in my free time is a particularly captivating form of procrastination.
To get to the point – I received yesterday the current incarnation of Senate Farm bill, which incorporates and modifies the Dairy Security Act bill. I found it intriguing that some producer groups in their newsletter that same day emphasized several changes from DSA to Senate bill, but did not outline the change in the feed ration. For example, DSA had corn price per bushel multiplied by 1.192, and Senate bill has 1.0728, a difference that makes March 2012 DSA corn contribution to feed cost a full 77 cents higher. In fact, for March 2012, DSA margin was $3.63, while Senate bill version has it at $5.00, a whopping $1.37 difference.
Think about it – if the average difference between DSA and Senate bill is $1.00 (it was more since Jan 2010), then insuring $6.50 margin under DSA is like insuring $7.50 margin under Senate bill. That makes a lot of difference in how you read the premiums for supplemental insurance. The Senate $6.50 margin now costs only $0.09 for the first 4 million lbs, and $0.29 for marketings that exceed that threshold. But that’s comparing apples to oranges. Proper comparison is between DSA $6.50 margin (premium was $0.23) and Senate $7.50 margin, and that one is $0.60 for the first tier, and $0.83 for the second tier.
I trust that Sen. Stebanow team is doing their best, and my guess is they are simply constrained by the CBO score. That is expected, if you try to buy the house insurance while smoke is coming from the attic, it might not be that cheap. When Rep. Peterson was introducing his bill last fall, margins and outlook (based on futures) looked very positive. Things have changed since, and CBO score likely reflects the fact that the DSA margin for March 2012 was a sheer 20 cents higher than the one for January 2009. So increase in cost of insurance is to be expected. Except, in our case, it was passed in through a change in margin definition, rather than the change in premiums.