What’s up (down!) with milk supplies?

While U.S. milk production reportedly increased over year ago according to the most recent USDA data, even the CME Daily Dairy Report is now making note of just how tight the milk supplies are in the Northeast and Mid-Atlantic regions. USDA Market News reports that supplies are "barely adequate to fulfill contracts for manufactured products with any excess milk being used for next week’s fluid needs."

Makes one wonder how the Peterson-Simpson bill (Dairy Security Act of 2011), which was introduced Sept. 23, will work in this region (and other regions east of the Mississippi) populated by small and mid-sized farms and with deficit production.

Small and mid-sized farms tend to have far fewer commercial options for managing their margin risk compared with their larger dairy brothers.

If Peterson-Simpson becomes law, banks will likely push farms to sign up for the Peterson-Simpson (FFTF) margin insurance unless a farm can show it is managing margin risk another way. Those farms would then automatcically be enrolled in the required supply management as a condition of having signed up for the margin protection.

When the margins trigger and the largest farms opt-out because they have other options to manage their risk... what will become of the farms that are "supply-managed" when they are forced to cut production even if they have not expanded?

The Peterson-Simpson bill -- in effect -- will end up requiring supply management on a certain class of producers between regions and within regions. In my estimation, this is not good for regional food security or national food security.