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

In the dialog of potential changes for the Margin Protection Program (MPP), feed cost coefficients are often the most discussed by farmers and dairy industry specialists. While this may in fact be an area that needs adjustment, it is wise to look at all aspects of the program before locking in on the “best” potential changes to improve the program parameters.

In addition to feed costs, focus also is needed on the milk price used in the formula. The MPP currently uses the U.S. All-Milk Price as reported by the National Agricultural Statistics Service (NASS) of the U.S. Department of Agriculture (USDA). However, comparing the U.S. All-Milk Price to the Mailbox Milk Price series reported by USDA’s Agricultural Marketing Service proves interesting.

The stated difference between these two milk price series is hauling and other deductions that are included in the Mailbox Milk Price estimate but excluded from the All-Milk Price estimate. Mailbox Milk Prices may provide a closer estimate of what dairy farmers receive for their milk . . . but are slower to be published than the NASS All-Milk Price.

The U.S. All-Milk Price averaged $19.34 per hundredweight (cwt.) over the 2010 to 2015 period while the all federal order areas Mailbox Milk Price averaged $19.39. These two price series are not directly comparable because nonregulated areas and California are excluded from the Mailbox Milk Price used here. Still, differences in the relationship between the two series are apparent.

In the first five months of 2016, the U.S. All-Milk Price averaged $15.32 per cwt. while the all federal order areas Mailbox Milk Price averaged $15.11. This shows a 26-cent change in the relationship between the U.S. All-Milk Price and the all federal order areas Mailbox Milk Price this year relative to the 2010 to 2015 average.

This simple comparison shows that MPP payments made this year would have been higher had Mailbox Prices been used in the formula instead of All-Milk Prices. There are many reasons the relationship between these prices series has changed recently, but this examination reminds us to consider all possible modifications to MPP as the next farm bill debate unfolds.

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(c) Hoard's Dairyman Intel 2016
October 10, 2016

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