The new Dec. 5 deadline to sign up for MPP (Margin Protection Program for Dairy) coverage in 2015 is fast approaching. Rumor has it that signup so far is very low; even nonexistent in some counties. This could mean two things: 1) dairy producers are not interested in signing up, or 2) everybody is waiting until the last minute.
I have a suspicion it is more of the latter, so to avoid turning FSA’s offices into a Macy’s parking lot the day before Christmas, I have a request: Please do not wait until the last minute. I understand every day is not like Sunday – everybody is busy, and spending time at a government office does not rank very high on the "fun to do" list. But putting it on your agenda now may save you headaches later.
While there are no limits on coverage volumes offered (i.e., FSA cannot run out of insurance contracts), FSA staff may run out of time and it may get difficult to get scheduled in.
If you fall in the first category, perhaps you are already doing some risk management you feel comfortable with, and MPP just doesn’t seem like a worthwhile addition to your coverage strategy. I’d still argue the basic coverage wouldn’t hurt, I won’t force the issue.
However, if you fall in the first category and are not doing anything on the risk management front, I strongly recommend you take the time to look into MPP. For $100, you can get catastrophic coverage ($4/cwt. margin) on 90% of your production history (regardless of your dairy’s size). If you feel risk management is too complicated, MPP is a great way to get your feet wet with the concept at a low cost/small time commitment.
And think about this: Doing absolutely nothing could actually add risk to your operation’s margin. Assume the rest of the country is participating in this program. If a severe downturn were to occur, and every dairy operation was getting a check from FSA, it may prolong the period in which you are experiencing low margins. Not a very desirable outcome.
Currently, forecasts point to declining, but relatively strong margins in 2015. Those forecasts will change as we get closer to the sign-up deadline. A few months ago, the probability of getting a payment at the $8 margin level was 0%; now, it goes as high as 36% for the May-June period.
A word of caution to those waiting for the latest forecast before signing up: Those forecasts are based on current market conditions, so by the time we roll into the second half of 2015 (which will then be too late to change your coverage decision), the situation could be completely different than what is currently expected. At a minimum, (and the risk of sounding like a broken record), it would be very prudent to sign up at the $4 level.
For more information on MPP, you can look at www.westernuniteddairymen.com for a PowerPoint and relevant links.