USDA released enrollment figures for the Margin Protection Program for Dairy (MPP-Dairy) coverage year of 2015. What happens next depends on milk and feed prices.
Based on market conditions as of Jan. 20, 2015, milk prices will be lowest between March and June 2015. When combined with projected feed costs, there's a strong probability milk income margins will fall into the range of coverage ($4.00-$8.00/cwt.) offered by MPP-Dairy.
According to estimates included in a paper, "Comments on Summary Enrollment Data for MPP-Dairy," authored by several leading dairy economists, the chances of margins falling below $8.00/cwt. in March-April and May/June 2015 was 78%; below $6.50/cwt. was 40%; and below $4.00/cwt., just 1%.
The paper is available on the Dairy Markets and Policy website (www.dairymarkets.org/MPP/). The authors include: Andrew M. Novakovic, Marin Bozic, Mark Stephenson, Christopher Wolf, Charles Nicholson and John Newton.
Dairy farmers who simply enrolled in MPP-Dairy and paid the $100 administrative fee were eligible for the "Catastrophic" coverage ($4.00/cwt.) From there, farmers could choose eight levels of "Buy-Up" coverage, in increments of 50¢, to margins as high as $8/cwt.
According to the DMAP paper's authors, about 13,091 farms – or about 55% of all enrolling in MPP-Dairy – elected the "Buy-Up" coverage. USDA has not yet reported the enrollments at each "Buy-Up" level. MPP-Dairy participants in the eastern states were more likely to choose higher coverage levels, while "Buy-Up" coverage was less likely in a majority of western states.
The MPP's margin definition is the national all-milk price, minus national average feed costs. Multiple websites offer estimated margin calculations, updated daily based on milk and feed futures prices. Visit the DMAP page at http://dairymarkets.org/MPP.
The formula includes full-month (not preliminary) corn, alfalfa hay and all-milk prices found in the USDA National Agricultural Statistics Service (NASS) Agricultural Prices publication, usually released the last business day of each month. Soybean meal prices can be found in the Agricultural Marketing Service (AMS) daily Central Illinois Soybean Processor (www.ams.usda.gov/mnreports/gx_gr117.txt). Go to the 48% Soybean Meal R monthly price at the bottom of the report.
To determine the feed cost factor, add:
• 1.0728 times the price of corn per bushel; plus
• 0.00735 times the price of soybean meal per ton; plus
• 0.0137 times the price of alfalfa hay per ton.
Once calculated using the NASS and AMS prices, USDA's Farm Service Agency (FSA) will post monthly margins at the FSA Dairy Margin Protection Program website (click here).
John Hollay, vice present of government relations with the National Milk Producers Federation (NMPF), reminds farmers payments are made only when margins fall below triggers within the defined periods:
Thus, if margins are above payment triggers in January, fall below triggers in February and March, but move back above trigger levels in April, farmers will receive no payments.
If margins fall below the margin protection level selected by the producer during the defined periods, the program will pay farmers the difference on one-sixth (or two months" worth) of their production history at the percentage of coverage they elected to insure.
Hollay estimates farmers would see payments approximately 6 weeks after a triggering event. For example, if payments were triggered for the January-February period, farmers would likely see payments around the first week of April.
Payments will be distributed similar to other federal USDA programs, utilizing direct deposit.
If they haven't already been paid at sign-up, 25% of MPP-Dairy premiums must be paid by Feb. 1, with the remaining 75% balance to be paid by June 1.
Also, MPP-Dairy participants must comply with conservation compliance provisions to be eligible.
If you missed enrolling, the next MPP-Dairy sign-up period will run from July 1 until Sept. 30, 2015, covering calendar year 2016.
Reviewing the numbers
According to "Comments on Summary Enrollment Data for MPP-Dairy," the number of U.S. dairy herds enrolled in MPP-Dairy (see Table 1) is 23,807, representing about 51% of all herds commercially licensed to sell milk in 2013 (2014 totals of commercially licensed dairy herds will be released in late February.)
Dairy Herd Management analysis also summarizes numbers for the Top 10 milk-producing states, and the 23 "major" dairy states reported monthly by USDA.
Due to farm exits, the percentage of all herds commercially licensed in 2014 and enrolled in MPP-Dairy could be slightly higher. The USDA data provided information on the percentage of total farms enrolled in each state, but did not provide specific numbers of enrollees for each state. The numbers listed in the table are "implied" numbers calculated by the paper's authors.
According to the paper:
• States with higher average farm size had a higher percentage of farms enrolled.
• Many states in the eastern half of the U.S., including major dairy states of Pennsylvania, Ohio and Indiana, had below-average enrollment rates. This part of the country – from northwestern Appalachia through the Corn Belt and Great Lakes – generally has smaller average herd sizes and rely predominantly on homegrown feeds. Several of these states also have significant Amish and Mennonite populations, cultural groups that traditionally eschew government safety net programs.
We still don't know how much of U.S. annual milk production is covered under MPP-Dairy. Participants were allowed to enroll between 25% and 90% of their annual production, and preliminary USDA data does not indicate the average production percentage covered.