The author is an assistant extension professor in the department of agricultural and applied economics at the University of Missouri
Brown Swiss cows

Federal dairy policy is under more scrutiny these days as dairy farmers have seen farm gate milk prices tumble by nearly $10 per hundredweight relative to the record $25.92 mailbox price set in September 2014. As dairy farmers face more financial pressure, there is renewed vigor in discussing whether the Margin Protection Program (MPP-Dairy) passed in the 2014 Farm Bill is providing an adequate safety net for producers.

There is some interest in returning to previous dairy policy, like the Milk Income Loss Contract (MILC) program. However, given the milk and feed prices used in the MILC formula, there would have been no payments under the MILC program through January 2016. Let's restate that . . . to date, neither MPP nor MILC would have provided payments that some in the dairy industry are calling for given current milk prices.

There are differences between the safety net features of these two dairy policy options.
Under MILC, producers received 45 percent of the price decline once milk prices fell below the trigger level. This left producers exposed to 55 percent of the price decline, even if their production was fully eligible for a MILC payment.

Under MPP, once the margin level falls below the producer-chosen level, producers are paid penny for penny for the chosen coverage level, but they may be responsible for a premium payment depending on their chosen level of margin coverage. These various insurance alternatives provide different levels of protection once payments are triggered.

It remains extremely difficult to construct a stronger safety net program for dairy farmers while reducing federal spending remains a priority.

The Congressional Budget Office estimates that for the 2016 fiscal year dairy CCC (Commodity Credit Corporation) expenditures at $42 million, and USDA estimates that dairy cash receipts will total $33.2 billion in 2016, a drop of over $16 billion from the 2014 level. Identifying a safety net program for dairy producers that can moderate a $16 billion (B as in billion) drop in cash receipts yet only cost $42 million (M as in million) to the federal government is a challenge indeed.

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(c) Hoard's Dairyman Intel 2016
March 21, 2016
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