Farm Bill Will Offer Cheap Dairy Margin Insurance

While dairy farmers await the final rules of the dairy margin insurance to be offered through the 2014 farm bill, one thing is clear: It will be relatively cheap, especially for smaller farms.

"The historical average margin (milk price minus feed costs) is $8.26/cwt," says John Newton, a University of Illinois dairy economist. At the $8 coverage level, farms with less than 4 million lb. of annual milk production will be able to get 90% coverage of that historical average for less than 50¢/cwt. And they can get 80% coverage for less than a dime.

The program offers two sets of premiums. The first, lower set of premiums is for herds with four million lb. or less annual milk production. To encourage participation, these premiums are further discounted 25% the first two years of the program. The second set of premiums is for production above 4 million lb.

Unlike the Milk Income Loss Contract (MILC) program, farmers will pay premiums and receive indemnities on the amount of milk in their historic farm base (the highest level of milk produced in 2011, 2012 or 2013). MILC payments were made on actual milk marketings.

But there are still a lot of details to be worked out, and final rules might not be released until late summer. For example, USDA will have to decide how far in advance farmers can sign up.

Some want the sign-up deadline as close as possible to the start of the marketing year. That would allow farmers to better know market conditions and make more informed insurance choices. Others want the gap to be longer so that farmers won’t be able to game the system.

It’s also unclear whether farmers will be allowed to choose each year between the margin protection program and Livestock Gross Margin-Dairy insurance program.

Newton has created a Margin Protection Program dashboard calculator that allows dairy farmers to see how premiums and indemnities change under different coverage levels. Farmers can select various coverage levels, coverage percent and production levels. Access the dashboard here.