MPP-Dairy: It's insurance

The open enrollment period for the Margin Protection Program for Dairy (MPP-Dairy) ends on Sept. 30, so producers who are either already enrolled in the program for 2015 or planning to enroll for the first time in 2016 need to get their paperwork to their local Farm Services Agency (FSA) office in the next month.

For producers who participated in the program in 2015, you will only have a short form (CCC-782) that must be submitted by the end of September. That document, which can be found on our website at: http://dairyherd.com/sites/default/files/CCC782.pdf, is where you will designate the level in which you want to participate (ranging from the basic level that requires only a $100 administration fee, up to the enhanced levels that require premiums on top of that fee). You will also need to submit that $100 fee along with your submission (premiums can be paid on a delayed schedule, with 25% paid by Feb. 1, 2016 and the balance by June 1).

As for the options a participating dairy has, I would first refer you to our article published last month outlining how the MPP has operated thus far in 2015 (http://dairyherd.com/sites/default/files/073115.pdf). In addition, there are a couple of resources that producers can take advantage of:

 

1. A number of dairy industry economists collaborated to put together an online "MPP Decision Tool," which can be found at: http://dairymarkets.org/mpp. This tool not only calculates the premiums that would be due for each of the various levels of coverage, but also utilizes the futures market combined with some statistical analyses to provide some insight into how the various coverage levels might play out based on the market information we have right now.

 

2. These economists are also hosting a webinar on Sept. 4th at 7:00 am Pacific Time (10:00 am Eastern Time) to discuss general milk/feed market forecasts and go into more detail on this online Decision Tool. Producers interested in listening in on the webinar can go to: http://dairymarkets.org/MPP-Webinar. If that time doesn't work, the hosts have promised to make the recording available afterward, and we will post a link in this newsletter.

 

Some comments on these decision tools: While human nature drives most of us to analyze programs like this based on a cashflow "cost-benefit" basis (i.e., which level will give me the best return?), the MPP should really be viewed like an insurance plan. As has been said by many since the program started, "No one buys car insurance hoping they get in an accident." While critics will say that the MPP has failed to make any meaningful payments in 2015, that is because the average margin reductions we've seen in 2015 are nowhere near those that we saw in 2009 and 2012, the years that this program was modeled to protect against. As we continue to watch how our domestic markets react to the deeply discounted dairy market prices around the globe, we can only hope that we don't see the kind of milk prices being realized in markets like New Zealand. But if we did, that is certainly the type of disaster that the MPP is designed to address.

So as you examine your own operation, it's natural to explore these tools that can provide some forward-looking analysis on the various options at your disposal. But I would urge you all to also ask yourself a couple followup questions: What if the U.S. milk prices were projected to be less than $9 per cwt. over the coming year, as the current projections are in New Zealand? What am I willing to spend on an insurance plan that helps me weather that type of 2009/2012-like storm? For some, you may be building cash reserves or using futures markets and other hedging tools to mitigate that risk, but for others, the MPP can be a significant part of your protection strategy. You all spend thousands or tens of thousands of dollars on other insurance policies already – none of which did anything to help your dairy survive the devastating margin collapses in 2009 and 2012.

Regardless of what you ultimately decide, make sure you get the paperwork in to your local FSA office by Sept. 30, and let me know if there's anything MPC can do to help.

 
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