financial tightrope

The author is a research assistant extension professor in the department of agricultural and applied economics at the University of Missouri.

The Missouri dairy industry has been in a long-term, steady decline. In the early 1980s, Missouri ranked No. 11 nationally in milk production. By 2015, the Show Me state's ranking declined to No. 25. Dairy infrastructure is at a critical level in the state. The Missouri legislature recognized that the industry was going to continue to shrink unless steps were taken quickly.

The passage and subsequent funding of the Missouri Dairy Revitalization Act of 2015 (MDRA) provides three areas of support to the industry:
  1. Reimbursement of a portion of premiums paid under the federal Margin Protection Program (MPP-Dairy)
  2. Scholarships for the next generation to work in the industry
  3. University-based research on current Missouri dairy industry issues
Time will tell whether this legislative focus on the Missouri dairy industry will provide the boost needed to change its course.

MDRA reimburses 70 percent of a Missouri producer's MPP-Dairy premium up to 34 cents per hundredweight (cwt.). For a producer with less than 4 million pounds of covered production history who chooses $8 MPP coverage, their effective premium for that level of coverage declines from 47.5 cents per cwt. to 14.3 cents per cwt.

The MDRA may illuminate how producer participation in MPP-Dairy changes with lower premium rates. Given the March/April 2016 MPP-Dairy margin, producers who opted for $8 coverage will receive a payment of approximately 85 cents per cwt. before a 6.8 sequestration reduction for this period.

If no additional payments occur in the remaining bi-monthly periods for 2016, a Missouri producer opting for $8 MPP-Dairy coverage will find the MDRA and March/April MPP-Dairy payments almost exactly offset their annual MPP-Dairy premium, while producers in other states opting for $8 MPP-Dairy coverage still face a net annual MPP-Dairy premium of about 33 cents per cwt. Given current price information, more MPP-Dairy payments are very likely in 2016.

There remains a fine line between too little or too much government support for an industry. The current MPP-Dairy experience may show the program is not providing enough support. However, Missouri's results may help show whether significantly lower premiums affect the coverage level choices made by producers.

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(c) Hoard's Dairyman Intel 2016
June 13, 2016
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