Recent future price swings in the dairy markets might have producers looking back at their MPP-Dairy election.
With just over 48 hours to decide, forecast 2015 margins slipped into the $7 range for a few months, with the MPP-Dairy Decision tool built by the Program on Dairy Markets on Policy predicting average margins below $8 from February through July. The tool predicts the middle 50% probability (red and green ranges in Figure 1) of where forecast margins are, with a 25% chance margins are above or below that range.
Or put in another way, for all but the two-month periods of March-April and May-June 2015, there’s less than a 50% chance of a payout (Figure 2). But producers buying $7.50 or $8.00 coverage would see a likely payment, at this point, with margins at $7.25 and $7.46, respectively.
A reminder to all dairy producers that coverage is only on 90% of milk produced, so the insurance payment would only cover 90% of the losses below a $8 margin, making the actual insurance feel like less.
According to the tool, for a producer with 3.5 million pounds of milk, they would expect net income from the program as of 12/16/14 at or above $5.50 coverage level (Figure 3). However, that expectation is based on the probabilities figured by the tool, and the tool itself shows an unlikely payout in 2015 below $7.00 coverage.