As noted previously, the $8.07 LGM-Dairy margin correlates to a MPP margin of $9.57/cwt. However, the maximum insurable margin under MPP is $8.00/cwt. Farmers marketing less than 4 million lbs. of milk could cover the $8/cwt. margin at an estimated cost of 47.5¢/cwt. under MPP, but those marketing more than 4 million lbs. of milk would pay $1.36/cwt. to cover the $8 margin.
Zepp noted the current April 2014 Class III futures price is $24.23/cwt., nearly $10/cwt. higher than the five-year April average Class III price of $14.77/cwt. Margins aren't likely to remain this large.
Under current conditions, LGM-Dairy would provide higher margin protection levels than would be available under the MPP. However, if milk prices crash or feed prices skyrocket for extended periods of time, shrinking income margins could prove MPP more beneficial.
USDA is required to develop MPP rules by September 2014.
“Protecting Your Profits” information and a recorded podcast are posted at http://centerfordairyexcellence.org/protecting-your-profits/. The website also adjusts LGM-Dairy estimated margins weekly, based on updated futures prices.
Zepp’s next call/webinar will be May 21, providing information for the May 23-24 LGM-Dairy sales period and any updates on MPP. For further information, producers can contact him at firstname.lastname@example.org or phone 717-346-0849.