Many of the farm commodity programs are set to expire with the extended 2008 farm bill (the Food, Conservation, and Energy Act of 2008, P.L. 110-246 ) in 2013. In anticipation, the 113 th Congress has been considering an omnibus farm bill that would establish the direction of U.S. agricultural policy for the next five years. On June 10, 2013, the full Senate approved its version of the bill ( S. 954 , the Agriculture Reform, Food and Jobs Act of 2013). On July 11, 2013, the House passed its version of the bill ( H.R. 2642 , the Federal Agriculture Reform and Risk Management Act of 2013). Both bills proposed replacing existing U.S. dairy price and income support programs with a new margin-based income support program. The Senate bill (but not the House bill) also includes an accompanying market stabilization program. During the House Agriculture Committee's markup of its first version of the 2013 farm bill ( H.R. 1947 ) in May 2013, an amendment ( H.Amdt. 228 to H.R. 1947 ) was introduced by Representatives Goodlatte and Scott that proposed removing the DMSP from H.R. 1947 and making some minor adjustments to DPMPP. The GSA was defeated by a vote of 28 to 26. However, the amendment was reintroduced during the House floor debate of H.R. 1947 and passed by a vote of 291-135 (May 15, 2013). The full House voted to reject the amended bill (195-234) on June 20, 2013. However, on July 11, 2013, the full House passed (216-208) a second version of the 2013 farm bill ( H.R. 2642 ) that contained the Goodlatte-Scott amendment. This report first briefly describes existing U.S. dairy programs. Then the dairy programs proposed in the 113 th Congress's Senate- and House-passed farm bills are discussed and compared. Several examples of how the proposed dairy programs might operate for an individual dairy operation are provided in the text. The report also includes Congressional Budget Office (CBO) cost projections of historical program outlays compared with the proposed new dairy programs under both bills, and a summary of academic analyses of potential market effects of the proposed dairy policies. Finally, the report includes an appendix that discusses disagreement over the market stabilization component of proposed new dairy policy and compares it with previous forms of supply management intervention in the U.S. dairy sector. Many provisions of the 2008 farm bill were originally set to expire at the end of FY2012; however, the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240 )—signed into law by President Obama on January 2, 2013—extended the 2008 farm bill for one additional year, through FY2013, or, in the case of the farm commodity programs that are on a different calendar, through crop year 2013. ATRA's passage avoided what news media and policymakers viewed as a looming "fiscal cliff." ATRA also extended the Milk Income Loss Contract (MILC) program through September 30, 2013, and the Dairy Product Price Support Program (DPPSP) through December 31, 2013. In addition to avoiding a "fiscal cliff," the ATRA extension of the 2008 farm bill temporarily avoided a reversion to 1949 permanent law and the so-called "milk cliff." Under permanent law, USDA would be compelled to purchase dairy products (milk and butterfat products) so as to support the all-milk price at 75% to 90% of a 1910-1914 parity price index. According to USDA, in May 2013 the all-milk parity price was $51.50 /cwt. At 75% of parity, the USDA milk-equivalent product purchase price of $38.63/cwt. would be nearly double the May average all-milk farm price of $19.70/cwt. A doubling of farm prices would likely lead to a substantial hike in retail prices, thus engendering the term "milk cliff." The potential reversion to permanent law, should current farm law expire without replacement or extension, is seen as an incentive for policymakers to produce new farm legislation, or at a minimum to extend current law. Current federal dairy policy is based on five major programs—the Dairy Product Price Support Program, the Milk Income Loss Contract Program, Federal Milk Marketing Orders, Dairy Import Tariff Rate Quotas, and the Dairy Export Incentive Program—which together are designed to provide price and income support and market stability for dairy producers. In addition, several smaller programs aid the U.S. dairy sector with market promotion, research, price reporting, risk management, and disaster assistance. Established by federal law in 1949 and modified in subsequent legislation (most recently the 2008 farm bill, P.L. 110-246 ), DPPSP indirectly supports the farm price of fluid milk at $9.90 per hundred pounds (i.e., hundredweight or cwt.) through government purchases of dairy products from dairy processors at statutorily set prices. The program is countercyclical, in that government purchases occur when product prices are low, and cease as product prices rise above support levels. Also, when purchases exceed certain statutory levels, USDA is required to make temporary price adjustments (reductions) to avoid the accumulation of excess government inventories. The DPPSP expires December 31, 2013, and would be eliminated and replaced with new policy under both the Senate- and House-passed farm bills. Since the mid-1990s, the annual farm price of milk has trended higher, albeit subject to an increasingly volatile pattern ( Figure 1 ), whereas the federal support rate has been flat at $9.90 per cwt. Volatile milk prices have made planning more difficult and have made dairy producers more vulnerable to unexpected or sustained increases in the cost of feed (the major cost component of dairy production). Analysts at the Dairy Policy Analysis Alliance (DPAA) have noted: The ability of price supports to maintain an effective price floor diminished as the support price was lowered and as dairy product manufacturers became increasingly reluctant to sell product to the government. In some cases, price supports have impeded U.S. dairy exports, distorted domestic markets, and constrained dairy product innovation. Milk producers have argued since the early 1990s that support levels have become too low, relative to market prices and costs of production, to provide meaningful support. More recently, milk producers contend that support based strictly on the price of milk fails to account for the sharp escalation of feed costs that has occurred since 2006 ( Figure 2 ). Since the emergence of the U.S. ethanol industry as a major source of corn demand in 2006, U.S. feed grain markets have surged to new price levels that are two to three times above the levels that persisted during the previous four decades. Rising feed costs are of particular concern to dairy producers because they represent a substantial portion of the cost of milk production—in 2011, feed costs accounted for 80% of operating costs and 54% of total costs of milk production (compared with 71% and 37% shares during the 2000-2004 period). First established by the 2002 farm bill and reauthorized in 2008, MILC provides farm income support by giving participating dairy farmers nationwide a government payment whenever the farm price of milk used for fluid consumption (Class I) falls below a target price (adjusted for feed costs) for Class I farm milk sold to processors in the Boston market ( Figure 3 ). Under the 2002 program, all dairy producers participating in MILC were paid an amount per cwt. of milk production equal to 45% of the difference between the MILC target price of $16.94 and the lower market price. Starting in 2008, an adjustment factor was added to the MILC target whenever a weighted formula of dairy feed costs exceeded an established threshold of $7.35/cwt. Thus, the per unit payment rate would rise with rising feed costs. MILC payments were made on the first 2.985 million lbs. of annual milk production per farm (equivalent to annual production from about 150 dairy cows). The MILC production limitation effectively limited MILC protection to about 30% of U.S. milk production. As a result of this payment limitation, the MILC program has not been popular among large dairy producers and has generated strong opposition from regions with predominantly larger herds. Most MILC payments occurred during the 2002 farm bill period (FY2002-FY2007) due to sustained low milk prices. In 2004, milk prices rose briefly, temporarily ending MILC payments, before restarting again in 2006. In 2007, milk prices rose sharply as part of a widespread commodity boom that lasted through most of 2008. In 2009 the U.S. dairy industry was especially hard hit by a combination of low milk prices and high feed costs that put exceptional financial pressure on many dairy producers and generated large MILC payments ( Table 7 ). Milk prices recovered through 2010, but by early 2012, the incorporation of feed-cost adjustments driven by high corn prices pushed the MILC-adjusted price trigger above the price of Boston Class I milk, once again triggering MILC payments. From April through August 2012, MILC payments averaged nearly $1.40 per cwt. On September 1, 2012, several MILC program parameters were lowered in advance of the program's original expiration date of September 30, 2012. The altered MILC parameters resulted in the payment rate falling to zero for the month of September 2012. Had MILC continued to operate under the original parameters during September 2012, then the payment rate would have been approximately $0.59/cwt.