It's pitiful past performance invoked indifference among dairy farmers. However, significant updates to the Margin Protection Program for Dairy (MPP-Dairy) should cause everyone to take a second look now that USDA has reopened the 2018 enrollment period from April 9 to June 1.
In a truly unique twist of economic fate, dairy farmers can sign up this year’s milk production even though over 40 percent of 2018’s prices will be known by June 1. That’s because changes to MPP-Dairy were signed into law this February as part of the Bipartisan Budget Act of 2018. It then took USDA several months to sort out the details to relaunch USDA’s signature dairy price protection program.
Among the changes enacted by Congress was a switch from a bimonthly to a monthly margin calculation. In addition, buy-up premiums fell from 47.5 cents to 14.2 cents per hundredweight (cwt.) on Tier 1 milk. That’s a 70 percent reduction of insurance coverage up to the $8 margin threshold on the first 5 million pounds of milk produced by a dairy farm. That number intentionally mirrors shipments from the average U.S. farm with 234 milk cows.
With February margins falling to a 20-month low at $6.88 per cwt., dairy producers who buy up coverage to the $8 maximum would receive $1.12 per cwt. This averages out to 9.3 cents per cwt. for the entire year on the first 5 million pounds, even if no other month initiates additional payments, calculated the University of Missouri’s Scott Brown.
The elimination of the “price blending” indeed played a significant role. Had the bimonthly margin calculation remained in place, the January and February margins of $8.12 and $6.88, respectively, would have blended to $7.50. That would have eroded benefits under the old plan.
“Further payments appear to be a near certainty as we move through the first half of the year,” predicted Brown. “Only producers with more than 20 million pounds of production history or those with 2018 target marketings under Livestock Gross Margin Dairy (LGM-Dairy) will need to consider more carefully their decision to participate in 2018.”
To be clear, everyone who milks cows for a living would prefer to make money on the merits of their daily labor. Since that isn’t the current scenario, it behooves every dairy farmer to reconsider the revamped MPP-Dairy. Don’t feel guilty about making the trip to your local Farm Service Agency (FSA) office either, as American dairy farmers have forked over more than $95 million in premiums since the beginning of MPP-Dairy. Less than 13 percent of those collections have been returned to us by the U.S. Treasury.