USDA is expected to announce the final details of the new “Margin Protection Program” (MPP) in the very near future. This is an important announcement from USDA, as Congress left numerous important questions unanswered in the Farm Bill approved earlier this year, such as:
• what the enrollment period is for dairies.
• whether the program is operated on a calendar year or fiscal year (like the Oct. 1 – Sept. 30 calendar for the Milk Income Loss Contract program).
• exactly how “new producers” will be defined and how dairies that change locations will be handled.
• how much of your production will be eligible for the lower premium.
• how your premiums will be paid.
• whether you actually have to produce the milk in order to be eligible for the payouts.
Once we have the final details of how the new program operates, Milk Producers Council (MPC) and many other organizations/cooperatives will be helping to educate the producer community on not only how the program works, but how to evaluate what may be the best option for your dairy.
In the meantime, there’s a fantastic tool available online that I’d recommend every dairy producer check out. It can be found at: http://www.farmdocdaily.illinois.edu/tools/flash_dairy_dashboard_010514.....
It makes some assumptions about how the premiums will be calculated, but does a great job of providing a historical look at how the MPP would have operated in any of the past 14 years.
In order to use the tool, you’ll need to enter a couple things:
• your dairy’s annual milk production (and remember that the MPP uses the highest annual production of 2011, 2012 or 2013 for your production history, so that is the number you would enter)
• the percentage of your production you’d like to participate in the program (from 25-90%)
• the level of milk-price-over-feed-cost margin you’d like to set for your participation (from $4-8/cwt)
With that information entered, you can look at individual years from 2000 through 2013 to see: (1) what the premiums would have been for your dairy, which would be the same regardless of year; and (2) what the net payout would have been, which varies by year, depending on the national average milk prices/feed costs.
As an example, if you entered 25 million lbs. of annual milk production (about the production of a 1,000-cow dairy), and entered that you’d like to cover 90% at a $6.00 per hundredweight margin, you’d see that:
• your dairy would be required to pay a premium each year of $0.14/hundredweight, or about $31,673.
• in 2009, the program would have had a net positive return of $1.64/hundredweight, or $375,782 spread out over the year (that’s a net figure, so you actually would have received over $400,000, but had to pay $31,673).
• in 2012, the program would have had a net positive return of $1.04/hundredweight, or $238,273 spread out over the year (again, that’s a net figure).
• in the other years, there would either have been no payout, or a negligible payout.
So while the past is not a perfect indication of the future, this tool can give you some valuable information about how a particular margin level would have operated under conditions that every dairymen vividly remembers – the devastating wrecks of 2009 and 2012. And that’s really what the program is designed for, to provide catastrophic margin protection.
So again, I encourage every dairyman to take a look at that tool, play around with the various margin/coverage levels, and learn as much as you can about how the program operates. And of course, MPC members with any questions can either call/email the office for assistance, or keep an eye out for soon-to-be announced area meetings where we will be going over the final program details in full.
A new survey from Dr. Marin Bozic at the University of Minnesota will help understand dairy farmer intentions and attitudes regarding the new Dairy Margin Protection Program (DMPP) being unveiled this fall. Take a survey