Comparison of Margin Definition in Peterson-Simpson Dairy Security Act and Stebanow-Roberts Farm Bill

This white paper compares the definitions of the “actual dairy producer margin” in the Dairy Security Act, H.R. 3062 (hereafter DSA Margin), with “actual dairy production margin” as defined in Committee Print of 2012 Farm Bill introduced by Sen. Stebanow and Sen. Roberts (hereafter Senate Margin).

DSA Margin is defined in HR3062, Sec 101 and 102 as the difference between

  • All-milk price, and the sum of
  • 1.192 times the price of corn per bushel
  • 0.00817 times the price of soybean meal per ton
  • 0.0152 times the price of alfalfa hay per ton

Senate Margin is defined in Committee Print of 2012 Farm Bill in Sections 1401 and 1402 as the difference between

  • All-milk price, and the sum of
  • 1.078 times the price of corn per bushel
  • 0.00735 times the price of soybean meal per ton
  • 0.0137 times the price of alfalfa hay per ton

Sources of the data in both bills are the same – preliminary National Agricultural Statistics Serviceestimates of “prices received” for all-milk, corn and alfalfa hay, and USDA Agricultural Marketing Service reported Central Illinois soybean meal price.

For March 2012, DSA Margin was $3.63, only 20 cents above the January 2009 DSA Margin. However, March 2012 Senate Bill Margin was $5.00, full $1.37 higher than DSA Margin, and $0.67 higher than Senate Bill Margin for January 2009.

To facilitate comparison over extended period of time, we use revised NASS prices for corn, alfalfa hay and all-milk (i.e. data available on For soybean meal, AMS data is used from January 2005 onwards, as found on Given extremely low basis between soybean meal futures and reported Central Illinois soybean meal price in 2005 and 2006, we use closing soybean meal futures prices for period before 2005. In particular, for those months for which futures contract is available (Jan, Mar, May, Jul, Aug, Sep, Oct, Dec) we used the average of the settle prices for the last three trading days. For those months for which contractsare not available (Feb, Apr, Jun, Nov) we use weighted average of prices for surrounding months.

Table below summarizes differences in margins for different sub-periods of the last 12 years.

Period / DSA Margin / Senate Margin / Difference
2000-2012 / 7.81 / 8.55 / -0.75
2000-2004 / 8.07 / 8.62 / -0.55
2005-2012 / 7.63 / 8.51 / -0.88
2010-2012 / 7.18 / 8.28 / -1.10
2009 / 3.66 / 4.58 / -0.92
2011 / 7.59 / 8.84 / -1.25
2012Q1 / 4.81 / 6.13 / -1.32

Figure below draws the difference between DSA Margin and Senate Margin from January 2000 through March 2012.

Implications:

1)Under new Senate bill provisions, average “actual dairy production margin” for 2009 is actually higher than $4.00.

2)The difference between DSA Margin and Senate Margin since January 2010 has been over $1.00, but the triggers for stabilization program have not been altered. That is very similar to keeping the DSA margin but reducing the triggers from $6.00 and $4.00 to $5.00 and $3.00

3)Accounting for the average difference between these margins, supplemental margin insurance premiums effectively increased.

DSA Margin / Senate Margin – Tier 1 / Senate Margin – Tier 2
$4.00 / $0.000 / $0.00 / $0.00
$4.50 / $0.015 / $0.01 / $0.02
$5.00 / $0.036 / $0.02 / $0.04
$5.50 / $0.081 / $0.035 / $0.10
$6.00 / $0.155 / $0.045 / $0.15
$6.50 / $0.230 / $0.09 / $0.29
$7.00 / $0.434 / $0.40 / $0.62
$7.50 / $0.590 / $0.60 / $0.83
$8.00 / $0.922 / $0.95 / $1.06

If a farmer wanted to insure $6.50 margin under DSA bill, he would have to insure $7.50 margin under Senate Bill, under assumption that the difference over the next 4 years remains as was the average for the last 2 years. DSA equivalent $6.50 margin would now cost 60 cents for the first tier, and as much as 83 cents for the second tier. Even as low as a $5.50 DSA margin would now cost $0.29 for the second tier, a more than 300% increase.