2016 Dairy Margin Protection Program Decision Time-Clock Winding Down

Ms. Dianne Shoemaker, Dairy Farm Management Specialist, The Ohio State University Extension

We are nearly to the final quarter of the first year of the Dairy Margin Protection Program (MPP).   Instituted as part of the 2014 Farm Bill, the MPP replaced the Milk Income Loss Contract (MILC) program and the $9.90/cwt minimum Class III support price programs for US dairy farmers.

The sign-up period for 2016 participation opened July 1 and is scheduled to run through September 30, 2015.  With this “regularly scheduled” sign-up period, farmers now have to make their decisions a full quarter before the coverage period of January 1 through December 31, 2016.  The 2014/2015 sign-up was uniquely late (September 2nd through December 19th) due to the time needed to establish rules for the program following the 2014 Farm Bill’s passage and deadline extensions.   

The advantage of that later sign-up was that we had a better feel for what 2015 might look like than we will have for 2016 when the coverage decisions have to be locked in by September 30th.  The bottom line is that none of us can predict what milk prices will be 3 to 15 months away.  The futures and options markets predict what milk prices might be based on today’s known facts and somebody’s guesses about the future.

During the 2016 sign-up period, farms that enrolled in the program for 2015 have the opportunity to change their coverage level and how much of their production history they want to cover.   Participating farms that do not go to their local Farm Service Agency (FSA) office and select a coverage level for 2016 will default to the “catastrophic” coverage level of $4/cwt  on 90% of their production history (no matter what they selected for 2015).  They will be charged the $100 per farm administrative fee.  If you want to buy-up coverage for 2016 to a margin between $4.50 and $8.00/cwt (in 50-cent increments), on a specified percentage of your base production between 25 and 90% (in 5% increments), you need to set up an appointment with your county FSA office before September 30, 2015.

An important change from the 2014/2015 sign up is that premiums for the first 4 million pounds of covered milk will be charged at the full rate.  There was a 25% reduction in these premiums for $4.50 through $7.50/cwt coverage levels in place for the first sign-up period.

If you enrolled in the program in 2015, your 2015 production history (PH) was calculated using your farm’s highest annual production from 2011, 2012, or 2013.  The highest year’s production was then increased by 0.87% to establish the 2015 PH.  Your 2015 production history will automatically be increased this year by a recently-announced 2.61% to calculate your 2016 PH. 

Farmers that chose not to participate in 2015, but would like to participate in 2016, should work with their FSA office to establish their PH and make their coverage selections.  Their PH also will still start with the highest annual production for 2011, 2012, or 2013 but will not include the 0.87% increase received by farms that enrolled in 2015.

Want to brush up on the MPP before you make these decisions?  A couple options:

  1. Contact your Extension and FSA office for resources or to talk through the program.
  2. Basic and advanced MPP decision tools are available at http://dairymarkets.org.  Use these to plug in your farm’s production history to look at projected premium costs and possible coverage if the markets for feed and milk perform as projected.  (They won’t, as they are impacted by national and international factors that will change constantly over the coverage period.  Use the historic options to see how the MPP would have performed if in place and compare that to your farm’s ability to handle catastrophic price issues.)
  3. Also visit http://dairymarkets.org  for an extensive library of fact sheets and videos covering participation in MPP.