Dairies across the country are watching their margins shrink. There are a few producers across the country, though, who will receive a consolation prize for the recent drop in milk prices in the form of a Margin Protection Program for Dairy (MPP-Dairy) payment.
MPP-Dairy payments are triggered when the national average margin (the difference between the price of milk and the cost of feed) falls below a certain producer selected margin trigger between $4 and $8 for a specified consecutive two-month period.
All final USDA prices for milk and feed components used to determine the national average margin for the first two-month period of this year (January and February) were released on March 30. The calculated margin for that period was $7.99554 per hundredweight (cwt.).
This is the first time since MPP-Dairy went into effect that margins fell below the $8 mark. The result is a payment of $0.004456/cwt. (or just over four-tenths of 1 cent) for dairymen who purchased the $8 margin coverage level. Producers who have paid their premiums in full will receive payment based on the amount of covered production history they elected for 2015. The USDA gave state and county Farm Service Agencies the go-ahead to start processing the MPP-Dairy payments last Monday, April 13.
In reality, this trigger will only impact a few producers. Of the 24,748 farms that selected some form of MPP-Dairy coverage, just 261 chose the $8 trigger level. Close to half (10,888) of the participating farms signed up for the minimum ($4) coverage.
If you are curious what prices were used to determine the national average margin, take a look at the chart below. To put these numbers in perspective, back in 2014, the milk margin per pay period sat between $11.96 and $15.51, far from the $8 trigger.
(c) Hoard's Dairyman Intel 2015
April 20, 2015
