Dairy Focus: Meeting set on dairy portion of farm bill

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A workshop for dairy managers on the new dairy will be held Monday, Oct. 6, at Farm Credit Services, 1600 Old Red Trail, Mandan.

U.S. Secretary of Agriculture Tom Vilsack announced Aug. 28 that the U.S. Department of Agriculture has finalized the rules for the Margin Protection Program for Dairy (MPP-Dairy). Sign-up begins on Tuesday, Sept. 2, and runs through Nov. 28, 2014, for the upcoming year.

However, sign-ups for future years will take place from July 1 to Sept. 30 for each year. Unless renewed by future farm bills, MPP-Dairy will sunset on Dec. 31, 2018.

This is a national voluntary dairy safety net program that was included in the 2014 farm bill. This is the equivalent of federal crop insurance for milk. MPP- Dairy represents a monumental shift in federal dairy policy. It replaced three federal programs: Dairy Product Price Support, Dairy Export Incentive and Milk Income Loss Contract (MILC).

This is the most comprehensive reform that federal dairy policy has seen in decades. The legislation has no definitive answer to a farm's level of participation; it is a case-by-case decision. The Farm Service Agency has been charged with administering the program. Producers have two forms to complete:

  • CCC-781, which will establish a dairy farm's production history
  • CCC-782, which will document the coverage level, or how much milk you want to insure

The USDA also has launched a Web tool to help producers determine the level of coverage through MPP-Dairy that will provide them with the strongest safety net under a variety of conditions. The online resource, http://www.fsa.usda.gov/mpptool, allows dairy farmers to combine unique operation data and other key variables quickly and easily to calculate their coverage needs based on price projections.

All dairy producers should consider attending the Oct. 6 meeting. If you cannot, an abbreviated version will be presented at the Dairy Convention on Nov. 5.

However, waiting until then will leave limited time to decide on your level of participation.

I am coordinating the workshop on Oct. 6. The workshop will start at 10 a.m. and be presented by Marin Bozic, an assistant professor at the University of Minnesota who has been actively involved in educational delivery to dairy farmers in a multistate area. Also on hand will be Brad Olson, farm program director, and Jay Hochhalter, program specialist, both from the North Dakota FSA, who will address the intricate details of MPP-Dairy sign-up and participation.

Preregistration is requested but not required. For planning purposes, we need an idea of who will attend. A registration fee of $10 will be collected at the door.

This is an interactive workshop. We will have a limited supply of laptop computers with training software available for use. However, attendees are encouraged to bring their own laptop or tablet. At a minimum, producers should bring their annual milk markets (pounds shipped) for 2011, 2012 and 2013 to compute their farm benefits.

In brief, to participate in MPP-Dairy, dairy operations must establish production history. Initially, production history is equal to the participating dairy's highest annual milk marketings during any one of the 2011, 2012 or 2013 calendar years. The individual production history will grow by the U.S. average production growth in subsequent years. Therefore, producers who expand significantly beyond average U.S. growth will not be able to protect the additional milk production under this program. No dairy market stabilization program is available.

Dairy farms in operation for less than a year may determine production history by using the volume of their milk marketings for the months in operation, extrapolated to a yearly amount, or estimate the actual marketing based on the herd size relative to the national rolling herd average.

The program has two tiers of pricing for annual premiums. The first 4 million pounds of milk sold annually will have significantly lower premiums than milk production above 4 million pounds. The $4 per hundredweight margin coverage level is available at no cost, but the premiums become increasingly expensive as margins increase. Additionally, premiums below the $8 level will be discounted by 25 percent for the first two years of the program for the first 4 million pounds of production history.

After the USDA calculates a monthly national average feed cost to produce 100 pounds of milk (using corn, soybean meal and hay prices), the agency will determine the actual dairy producer margin by subtracting that cost from the average all-milk price. A participating dairy operation will receive a payment whenever the average actual margin for a consecutive two-month period is less than the margin level selected for protection.

Now for the important considerations: This will be the only federal dairy program available to dairy producers. While some still can participate in Livestock Gross Margin Insurance for Dairy (LGM-Dairy), federal funding will not cover many operations. Plus, operators can participate only in MPP-Dairy or LGM- Dairy, not both. So if your operation wants a safety net, you should highly consider signing up for MPP-Dairy.

If you miss the Sept. 2 to Nov. 28, 2014, sign-up period, you will not have second chances to insure 2015's production. The same goes for future sign-up periods; it's a yes or no decision, without redos. What's also important to note is that once you sign up for MPP-Dairy, you are in the program until December 2018. You cannot get out of it once enrolled.

By signing up and paying the $100 administrative fee, you automatically are enrolled in the $4 catastrophic margin coverage, which is the difference between the price of milk and feed costs. As for higher coverage levels, which range from $4 to $8 per hundredweight, that is a decision each individual dairy farm will need to make. Every 50-cent additional level of coverage comes with higher insurance costs.

Despite the sticker shock at higher levels, remember that these premium costs are being shared with the federal government. On the open market, those premiums would be much higher.

How much milk can you insure? Dairy operators can pick between 25 and 90 percent of their production history. One cannot go above the 90 percent threshold because the authors of the program wanted each dairy operation to have some shared risk. Each farm's production will be based on the highest milk marketings from 2011, 2012 or 2013. Insurance payouts during poor margins will be determined by tethered months. That means January and February will have combined margins, March and April, and so forth.

The bottom line: We have experienced prosperous margins in the dairy industry this year. That was far from the case in 2008 and 2009. The best time to prepare for poor markets is during good markets. Take a solid look at MPP-Dairy, and make your decision by Nov. 28, 2014.

Visit www.dairymarkets.org/MPP for more information on the program.


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