While USDA is still hammering out the rules for the newly minted Margin Protection Program (MPP-Dairy) - and all other components of the farm bill for that matter - economists are creating tools that will assist dairy producers in making decisions on how to best utilize the farm bill's dairy insurance plan. One such tool was developed by John Newton, an assistant professor at the University of Illinois.
To get a feel for how MPP-Dairy is designed to function under various milk and feed price environments, Newton created "The MPP-Dairy Dashboard." The tool allows dairy producers to run "what-if" scenarios to illustrate how Dairy Margin Insurance can help to manage risk during unanticipated declines in dairy production margins. The tool can be found at http://farmdocdaily.illinois.edu/2014/05/2014-farm-bill-mpp-dairy-dashboard.html
The dashboard selection options include:
- Years: choose one between 2000 to 2013 (for demonstration only)
- Coverage level, $4 to $8 margin over feed costs (in 50-cent increments)
- Coverage percentage, 25 to 90 percent (in 5 percent increments)
- Production history (enter value in pounds)
Insurance isn't needed in good times; it's needed in dire circumstances. Right now, milk prices are at an all-time high and margins are the best we've seen in years. That being the case, now would be a good time to investigate how margin protection may benefit your dairy farm business in years to come.
A few things to keep in mind as you use the Dairy Dashboard. First, USDA has not announced how premiums will be calculated, and the dashboard currently prices the first 4 million pounds covered at the lower premium rate. Second, in our opinion, when selecting years, 2006 to 2013 conditions are more likely to reflect current dairy markets. And finally, this model does not consider what might have taken place had Margin Protection been an available insurance tool in prior years. To be honest, that would be a very tall order. All things considered, the dashboard should be used for educational purposes only.
Overall, John Newton and his team should be complimented for their ingenuity in developing this modeling tool. More information on their outreach efforts is available at: www.dairymarkets.org.
