Among changes found within the new farm bill, the Agricultural Act of 2014 includes Margin Protection Program for Dairy Producers (MPP), an important new safety net program for dairy producers.
"The MPP is a voluntary safety net program that provides producers with indemnity payments when a national benchmark for dairy income minus feed costs (i.e. a margin), falls below coverage levels producers select on an annual basis," explained Kim Dillivan, SDSU Extension Crops Business Management Field Specialist.
The MPP contains four main components:
- Actual Dairy Production Margin (ADPM);
- Actual Dairy Production History (ADPH);
- Coverage Percentage; and
- Coverage Level
Dillivan explained that ADPM is defined as the difference between the national average price per hundredweight of milk, and the cost of the three primary feed ingredients - corn, soybean meal, and alfalfa hay - which comprise the majority of rations fed on dairies.
This feed cost is determined by the national average price for corn and alfalfa, based on the monthly Agricultural Prices Report by USDA National Agricultural Statistics Service, and the central Illinois price for soybean meal, reported by USDA Agricultural Marketing Service.
"These feed ingredient prices are weighted so that this summed value represents the composition and cost of a typical dairy ration that produces 100 pounds of milk," Dillivan said. "It is a herd-level feed cost of producing 100 pounds of milk and, as such, includes the amount of feed fed to dry cows, replacements, and calves."
National average feed cost and milk price are calculated monthly, but the Actual Dairy Production Margin (ADPM) which will be calculated for each consecutive two-month period, using milk price and feed cost averages for those two months. Specifically, the calendar year is divided into six periods consisting of consecutive pairs of months (e.g. Jan/Feb, Mar/Apr, May/Jun, etc.).
"So, six times annually, USDA will calculate a margin to determine whether indemnities are paid," he said.
Participating dairies will be assigned an Actual Dairy Production History (ADPH) based upon their highest annual production in 2011, 2012, or 2013 calendar years. In future years, ADPH will likely be adjusted by the Secretary of Agriculture to reflect changes in US milk production. New dairies that have been operating less than a year will estimate annual production by either extrapolating monthly amounts to an annual estimate or by using their actual herd size and national yield amounts.