Ms. Dianne Shoemaker, Field Specialist in Dairy Production Economics, The Ohio State University
The Dairy Margin Protection Program, developed and launched as part of the 2014 Farm Bill, is considered a major disappointment in the dairy community. Changing from an industry-wide price support program to an individual-farm margin protection program, farmers could choose to “protect” a $4/cwt difference between the all-milk price and a calculated feed cost for a $100 per year enrollment fee. If you desire to protect a higher margin, then you can “buy up” coverage to protect up to an $8/cwt margin.
Unfortunately, “disappointment” is a proven evaluation as the program provided little or no support in 2015 or 2016, back-to-back poor years. Overall, most farms that “bought-up” coverage were lucky if they recouped the cost of the additional premiums which ranged from a penny to $1.36/cwt, depending on how much milk a farm produced and the coverage level desired.
While the signup for 2018 (currently the final year of the program depending on the next farm bill) was originally set to begin this July, it was delayed until September 1 and will continue through December 15, 2017.
The original program rules stated that once a farm enrolled in the program, they were committed to at least minimum participation through 2018. That meant that the farm would pay at least the $100 per year administrative fee plus any additional premiums if they desired a higher level of margin protection each year.
While industry groups, such as the National Milk Producers Federation, are putting forth proposals for improving the program as the next farm bill is debated, Agriculture Secretary Sonny Perdue was able to change the annual participation requirement for 2018. This change allows farmers who signed up to participate before 2018 the opportunity to not participate in 2018, saving them the $100 annual administrative fee.
The proposals for change seek to address serious deficits in the calculation of feed costs, which the current model underestimates. The original farm bill proposals calculated a more representative feed cost, but were adjusted so the plan would potentially cost less. It worked too well. Any reworks need to consider the regional differences in feed costs, as well as the validity of the base formulas.
If you participated in the Dairy Margin Protection Program in the past 4 years, you have one or two decisions to make between now and December 15th. Decision #1: Will you participate at all? If you do not want to participate, then there will be no administrative fee and no protection (little as that has been).
Decision #2: If you choose to participate, even at the minimum level, you must contact your local Farm Service Agency office and pay the $100 administrative fee that “protects” a $4/cwt margin on 90% of your base production. Then, decide if you want to protect a margin above $4/cwt and use the decision tool at https://dairymarkets.org/MPP/ to look at predicted margins and premium costs. While current projections show margins at or above $8/cwt through February 2019 (based on data available on 11/21/2017), staying in and paying the $100 administrative fee for the final year would provide some very cheap catastrophe-level insurance. Contact your local Farm Service Agency office and let them know what your decisions are for 2018 before the December 15th deadline.