U.S. Dairy Markets and Policy Update

Dr. Cameron S. Thraen, Associate Professor and OSUE State Dairy Markets and Policy Specialist, Department of Agricultural, Environmental and Development Economics, The Ohio State University

Policy Update: Dairy Producer Margin Protection Program (DPMPP)

By now, you are quite familiar with the broad outlines of the DPMPP. Participating producers will establish a base production history (bph) based on the highest annual production from the 2011, 2012 or 2013 calendar year. Once established, a farm’s production base will be allowed to increase by the U.S. average production growth.  There is no penalty for increasing production over this level other than the stipulation that extra production will not be eligible for the coverage under the DPMPP. Coverage rates will be 25 to 90% of the established production base. Premiums follow a two tier schedule.  For a production base at 4 million pounds or less, there is one schedule, and for those farms with a production base over 4 million pounds, there is another, more expensive schedule.  Those producers whose annual production is at or below 4 million pounds, the cost of coverage all the way up to $6.50/cwt remains very reasonable, only because it’s more expensive at the $7 to 8/cwt levels.  For a producer whose annual production base is above the 4 million pounds, the cost is still modest up to the $5/cwt level but then increases rather significantly above that point.  There are other provisions for new farms, farms with multiple owners, and owners with multiple farms.  Producers will not be allowed to simultaneously use Livestock Gross Margin Insurance and this program.  The program will not start until September of 2014 and decisions on coverage will be made on an annual basis.  The text of the farm bill specifies September 1, 2014 as the deadline to have these rules in place.  Final DPMPP rules will be announced by the USDA Farm Services Agency.

In addition to the DPMPP, the farm bill language directs the Secretary of Agriculture to implement a dairy product purchase and donation program to augment commercial demand with the intent of increasing the milk price in times of low margins.  Much of the operational details for this product purchase and donation program have been passed along to the USDA Secretary of Agriculture and are not known at this time.

If you would like to read more about these programs, link into the policy papers on the Farmdocdaily website (http://farmdocdaily.illinois.edu/authors/john_newton/)

Dairy Margin Update

The DPMPP margin is forecasted to stay above $11.00/cwt through the next 12 months.  This forecast is updated daily.  If you wish to follow the Dairy Markets and Policy DPMPP margin forecast, go to the DMaP website (http://dairy.wisc.edu/Tools/MILC-MPP.html).