The DMSP program is tied to the DPMPP program. Only producers who want the protection provided by the margin program will be subject to the provisions of the DMSP program if it goes into operation.
The purpose of the DMSP is to reduce margin volatility for dairy producers. The DMSP acts as an early warning system that sends strong and timely signals to producers participating in the margin protection program that small temporary adjustments in their milk production need to be made to stave off long-term reductions in their overall margins. The DMSP is designed to act swiftly and infrequently to address brief market imbalances.
The DMSP does not fit the traditional definition of a supply management program. However, market stabilization is part of this proposal because there are times when imbalances occur in the marketplace that negatively impact dairy farmer margins. In 2009, dairy farmers did not overproduce their way into extremely low margins, but demand, both domestically and internationally, collapsed with the global recession. The low milk prices combined with high feed costs resulted in the lowest margins most producers have ever experienced. Situations like this ultimately correct themselves, but without timely and effective intervention, they can drag on too long and drag down too many farmers along the way.
Each year, producers signed up for the margin program will decide if their DMSP production base will be determined either 1) using a rolling three-month average of the most recent milk marketings prior to the notification from the USDA that the stabilization program will go into effect, or 2) the same month in the previous year for each month the program is in effect. Each producer should analyze their milk production intentions (growing or not growing) and patterns (seasonal) in order to determine which base best suits their operation.
The following margin trigger levels are in the proposal:
The DMSP program is suspended when the margin is above six dollars ($6.00) for two consecutive months, or the when the U.S. cheddar cheese price or the nonfat dry milk price is:
Very quickly. If the milk price minus feed cost margin is determined to be below the DMSP trigger level margin for two consecutive months, the USDA will provide a 30-day notice that at the end of the second month during which the low margin occurs, producers will be paid for a reduced percentage of their milk marketings for at least the following two months. Producers will quickly do the math and determine it makes sense to adjust production rather than produce milk and not get paid for it.
The percentage of milk on which a producer would be paid under the DMSP is uniform across the country. Since milk prices paid to producers generally reflect regional differences in the cost to produce milk, the competition for milk and how milk is used, all producers will be impacted equally when the program goes into effect.
The Agricultural Marketing Service (AMS), a USDA agency, will have the authority to audit processor payrolls to ensure that the proper deductions and remittances of those funds are being made.
The DMSP base is temporary. It only is in place when the program is triggered in, then that base goes away when the program is suspended. If the program triggers in again, there is a new base in effect whether the producer picked the three month rolling average or the same month in the previous year. Therefore, there is not economic reason to “race” for base. In addition, the reduction in payment a producer may be subject to is limited by the percentage of current production provision.
The monies will be collected via milk check reductions by AMS in the same manner the dairy promotion check-off dollars are collected. The monies collected will be spent on making donations of cheese and other dairy products to food banks and feeding programs.