Monthly Archives: November 2013

Number of the Week: 8.5%
Gross income received by Minnesota milk producers for milk produced in 2012 was 1.15 billion dollars, which constitutes 8.5% of total Minnesota agriculture gross income.

An overview of top ten milk producing states reveals that gross income from milk production represents the highest share of agricultural cash receipts in New York and lowest in Texas (click on image to enlarge it).

MiN20131115 -HiRes

The share of Minnesota farm gross income from milk production declined from 27.8% in 1930, 21.2% in 1960, 19% in 1990 to 8.5% in 2012. The declining share of farm cash receipts from milk in Minnesota is due to increasingly vibrant and versatile agricultural economy in our state. Speaking at the Farm Bill conference committee meeting on October 30th, Sen. Klobuchar told her colleagues that when compared to other states, Minnesota is “number one in turkeys, number one in sweet corn, green peas and oats, number two in hogs and spring wheat, number three in soybeans, and number four in corn.” Minnesota is also number seven in milk production. In our state, dairy is the second largest livestock sector, and a fourth largest commodity overall.

Explore further:

USDA ERS: Farm Income and Wealth Statistics

This week’s Minnesota in Numbers was produced with financial support from Dairy Star and Minnesota Milk Producers AssociationMaggie Jennissen assisted in assembling the data and writing the commentary. 

with John Newton and Cameron S. Thraen

This brief summarizes the state of the knowledge on proposed dairy policy reforms, building on five working papers from three different research teams. The key findings relate to the effectiveness, expected cost, distributional effects and policy design shortcomings of the proposed reforms:

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  • Both the proposed 2013 House and Senate Farm Bills are likely to be very effective in providing catastrophic dairy margin insurance. If effective, the Senate stabilization program could also reduce the duration of low‐margin periods.
  • Contrary to other Farm Bill commodity programs, these dairy reforms impose no eligibility constraints with respect to farm size or adjusted gross income. The costs of the new policies are estimated up to be up to three times higher than the cost of extending the 2008 Farm Bill dairy programs, with larger share of program benefits accruing to large farm operators. The Senate stabilization program could reduce costs of 2013 Farm bill dairy programs between 5% and 30% relative to standalone margin insurance, with results highly sensitive to market price responsiveness to reductions in milk supply.
  • If the current policy proposals enable dairy producers to make the annual insurance sign‐up decisions immediately before the insurance coverage period starts, they will encourage producers to use the new programs strategically – over‐insuring when anticipated income over feed costs margins are likely to be much below average, and forfeiting margin insurance when forecasted margins are above average. This design feature unnecessarily increases program costs by at least 20%, and can be easily addressed in several ways. One option discussed in the brief is to introduce a six‐month gap between the annual sign‐up date and the beginning of the insurance coverage period. This change would preserve low and affordable premium levels, while realigning program design with the original purpose of the policy reform – offering affordable catastrophic risk protection.

Explore further:
See the video podcast where I discuss this brief with Dr. Mark Stephenson. Graphics used in the video podcast avaiable here. Download the Issue Brief and the FPRC Press Release.

Number of the Week: 35.3%
According to the USDA, purchased feed costs constitutes only 35.3% of total dairy feed costs in Minnesota, with majority of costs due to homegrown harvested feed (valued at market prices). This is the lowest percentage in the entire nation.

MIN20131101 - Graph HiRes

Last week, USDA Economic Research Service released an update to state-level Milk Cost-of-Production estimates. Of the 23 major milk producing states, Minnesota stands out as the state with the lowest percent of feed costs attributable to purchased feed.

In Minnesota, 64.7% of the livestock feed value comes from feed grown on the farm (valued at market prices). That exposes Minnesota farms to increased production risk, such as winter-kill loss of alfalfa; this year, Minnesota lost about 750,000 acres of alfalfa. On the other hand, growing most of the needed feed gives our dairies more financial stability in face of highly volatile feed costs, as experienced in 2012 and 2013.

The map above (click to enlarge) also makes clear why it is very hard to design one-size-fits-all federal dairy policy that would make everyone happy. For dairies in western states, it may be more important to protect income over feed costs, while many smaller Minnesota dairy farms likely care more about having milk price risk protection. Furthermore, more variable year-to-year milk production due to feed production risk, as well as higher fixed (and lower variable) costs of production, may imply that Midwest dairies have higher adjustment costs when Dairy Market Stabilization Program is triggered.

Explore further:

USDA ERS, Milk Cost of Production Estimates
MPR News on alfalfa winterkill

This week’s Minnesota in Numbers was produced with financial support from Dairy Star and Minnesota Milk Producers AssociationMaggie Jennissen assisted in assembling the data.