MPP Margins: What could have been

Budget constraints during the formulation of the 2012 farm bill led Congress to reduce the dairy feed formula by 10%. That lowers feed costs, increases milk/ feed margins, and reduces the number of times Dairy Margin Protection Program payments are triggered—and at what level.

"These margins triggered MPP at only the highest coverage level of $8 per hundredweight and only 264 farmers received payments [in 2015]," says Randy Mooney, a Rogersville, Mo. dairy farmer and chairman of the National Milk Producers Federation. "Had Congress not reduced the feed ration calculation, ‚...more than 8,500 dairy farmers would have received a benefit from MPP."

The April milk/feed margin under the existing formula is $6.83/cwt. Averaged with the March margin of $7.47, the March/April average margin is $7.15/cwt. That triggers MPP payments for any dairy producer signing up for $7.50 or $8 margin insurance. According to USDA, 345 dairy farmers have signed up for this level of coverage in 2016.

Had the 10% feed adjustment not been taken, however, the April margin would have been $5.92; the March margin would have been $6.60. They would have averaged $6.26, triggering MPP payments for all producers who had signed up for coverage at $6.50 or above. Had Congress not cut the feed costs formula, an additional 2,260 farmers would have been covered.

But there's no easy solution in the next farm bill, given likely Federal budget constraints. "We continue to discuss ways to improve the program with our dairy farmer member cooperatives, USDA and the Congress," says Chris Galen, NMPF's senior VP of communications. "There is no silver bullet fix, but rather, we must look at the program's comprehensive framework, including premium rates, coverage levels, and the formulas for determining monthly margins."