News reports have lately been filled with dire predictions of $8 per gallon milk and the end of life as we know it. However, the Farm Bill effects far more than the price of dairy.

The basics
The Farm Bill is one of the largest and most contentious pieces of legislation in Congress at the moment. It includes almost $1 trillion dollars in spending over the next 10 years. Its actual name is the Federal Agriculture Reform, Food, and Jobs Act of 2013 (S.954). The majority of the bill involves food assistance, nutrition, and agricultural programs. Over the years, Congress has added conservation, forestry, energy, and rural-development programs. All this adds up to a complex and costly bill that benefits many corporate giants, including Monsanto (NYSE: MON), Archer Daniels Midland (NYSE: ADM), and Syngenta AG (NYSE: SYT).

In 2008, Farm Bill lobbyists spent a robust $173.5 million. The bill is proving more contentious this cycle, with the one-year extension having expired last October. According to OpenSecrets.org, in 2013, Monsanto spent $5,430,000 lobbying for the agriculture industry, while ADM gave $1,340,000 and Syngenta AG contributed $1,170,000. Each company has a big stake in this legislation, which affects everything from crop insurance to commodities pricing to energy policy -- and each may have a hand in writing it.

The dairy debate
According to FutureForDairy.com, producers have been playing catch-up with grain prices for years, because the old method had the government setting dairy prices. However, the Senate version of the Farm Bill included the Dairy Market Stabilization Program, or DMSP, which would alleviate the downside risk with insurance while allowing producers more flexibility when grain prices increase relative to milk prices. That option recently died in the House. Now it's a battle between various House amendments and an academic option presented by John Newton and Cameron Thraen of Ohio State University's Department of Agricultural, Environmental, and Developmental Economics. They call it "MILC and Honey." It combines portions of DMSP and MILC. The program would cost taxpayers anywhere from 40% to 60% less than DMSP alone. 

Archer Daniels Midland (NYSE: ADM) is interested in the dairy debate for two reasons. For one, it has invested in the Dairy Solutions Team, a wholly owned subsidiary of ADM that provides guidance on herd nutrition and risk management. Secondly, its relatively new chocolate venture utilizes dairy to produce some of its products. ADM would benefit from any provision that would decrease the volatility of dairy prices.

Research and development
It's no secret that Monsanto (NYSE: MON) is a biotech giant. Part of the reason for that success is that it has managed to inundate every part of the political process. Not only does it lobby, but it also makes campaign contributions across both parties and in both houses of Congress. Several former members of the company serve in key executive appointments in the FDA and the USDA, putting them in a prime position to shape legislation and policy. While not every variable can be predicted, Monsanto has certainly stacked the deck in its favor.

International considerations
In the U.S., the agricultural industry is responsible for more than 23 million jobs and more than $30 billion in annual trade surplus. Part of that trade surplus is with Brazil. Why does that matter? Cotton farmers in Brazil complained that U.S. cotton producers had an unfair advantage in the subsidies they were receiving. If the subsidies are not changed to WTO standards with the new bill, then Brazil will be able to impose "retaliatory tariffs" amounting to hundreds of millions until the law is changed. Syngenta gets more than 25% of its revenue from Latin America, as do many large multinational agricultural firms, so tariffs would have a negative impact on earnings. If tariffs were allowed to go into effect, even for a short time, it would have a definite impact on future earnings. Both Houses agree direct payment subsidies need to end. What they end up replacing it with is still up for debate.

The takeaway
Investors should be aware of how their companies are investing money -- whether it's in equipment, human capital, or, in this case, public policy. For ADM, its investment could help reduce volatility in the dairy market and thus help the company anticipate costs. Monsanto invested $5 million-plus in lobbying dollars, so even if it receives just 0.01% of the nearly $1 trillion in Farm Bill spending, its investment will have reaped handsome returns. I also believe the Farm Bill will include the WTO requirements necessary to satisfy the Brazilian government, preventing Syngenta from losing Latin American business due to "retaliatory tariffs."