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: Margin Protection Program (MPP)

On August 28, 2014, USDA Secretary Vilsack officially announced the start of the new Margin Protection Program (MPP). Here are some of the highlights. If you elect to participate, you will be required to establish a production history (PH) based on the highest annual production from the calendar years 2011, 2012, or 2013.  Once established, your production history 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 MPP.  Selecting coverage above the lowest level of $4 will require you to pay a premium.  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, another more expensive schedule exists.  For those producers whose annual production is at or below 4 million pounds, the cost of coverage all the way up to $6.50 remains very reasonable, only becoming more expensive at the $7 to $8 levels.  For a producer whose annual production base is above the 4 million pounds, the cost is still modest up to the $5 level, but then it increases rather significantly above that point.  There are provisions for new farms, farms with multiple owners and owners with multiple farms.  You will not be allowed to simultaneously use Livestock Gross Margin (LGM) Insurance and this MPP program.  There are rules in place that spell out very clearly how MPP and LGM-dairy will coexist.  As the program is now officially launched, you will be able to register with your local USDA Farm Services Agency beginning September 2, 2014 up through November 28, 2014.  At the time of registration, you will be able to select a coverage percentage (25 to 90%, 5% increments) and a coverage level ($4 to $8, 50 cent increments).  During this initial period, you will be able to make this selection for the remainder of 2014 and all of 2015. A producer does not have to make this decision now but can wait until the following registration period.  However, once the decision is made to register and participate in the program, you are obligated to pay the $100 administrative fee each year until September 2018.  Elections of coverage percentage and coverage level are made each year and can be changed during the enrollment period for each year.  After November 2014, enrollment will occur from July through September for calendar years 2016, 2017, and 2018.

In addition to the MPP, 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.

The new dairy program published in the U.S. Federal Register can be found at: http://www.gpo.gov/fdsys/pkg/FR-2014-08-29/pdf/2014-20567.pdf If you do not enjoy reading the U.S. Federal Register, you will find a very readable exposition on the new dairy program at this link: http://dairymarkets.org/PubPod/Pubs/IL14-02.pdf. Information about the dairy margin tool as administered by the USDA Farm Service Agency can be found at: http://www.fsa.usda.gov/FSA/pages/content/farmBill/fb_MPPDTool.jsp

National U.S. Dairy Margin Update

The MPP margin is forecasted to stay above $10.00/cwt through the next 15 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).

Figure 1

If you would like to read more about these programs, link into the Dairy Markets and Policy website (http://dairymarkets.org/MPP/).  Here you will find a wide assortment of support information on this new program.