The National Milk Producers Federation has once again been caught in the middle of a debt dispute between a dairy and its creditors.

The federation intended to pay Idacrest Farms of Kuna, Idaho, more than $820,000 for retiring a herd of 722 cows as part of its Cooperatives Working Together program.

The program's goal is to reduce the overall size of the U.S. dairy herd, thereby cutting production and improving milk prices.

Idacrest Farms won a bid to participate in the program in August 2009.

Before the farm received the payment, Banner Bank of Walla Walla, Wash., asserted a claim on the full amount, according to court documents filed by the federation.

In response, the federation has filed a legal complaint seeking to turn the money over to a federal district court, which would allow the group to disentangle itself from litigation.

The case is similar to a recently resolved dispute between a dairy in California and several of its creditors.

Coelho Dairy of Merced, Calif., was eligible for a $285,000 herd retirement payment from the federation, but several creditors asserted claims of more than $670,000.

The federation turned the funds over to a federal court, and two of those creditors ultimately received a portion of their claims as part of a settlement agreement completed last month.

-- Mateusz Perkowski