With both the House of Representatives and Senate passing unique versions of the 2018 Farm Bill, future dairy policy direction becomes clearer. Although each bill renames the current Margin Protection Program for Dairy (MPP-Dairy), the current MPP-Dairy framework that was originally passed in the 2014 Farm Bill is retained, though with modifications.

Impact on dairy farmers
Although a conference agreement of these two bills could result in further changes, it is instructive to examine how these bills would affect dairy producers.

Greater coverage: The largest change in common to both 2018 Farm Bill versions is the ability for dairy producers to sign up for the higher coverage levels of $8.50 and $9. These higher buy up coverage levels strengthen the safety net for dairy producers relative to the maximum coverage level of $8 provided in the 2014 Farm Bill.

Analysis: Over the 2010 to 2017 period, monthly MPP-Dairy payments would have occurred nearly 41 percent of the time with an average payment of 66 cents per cwt. of production history covered at the highest $8 coverage level. Over the same historical period, a $9 coverage level would have yielded a payment to 58 percent of the months with an average payment of $1.15 per cwt.

What about the future?
Although the past can provide insight into the frequency and level of future payments at alternative coverage levels, a forward-looking approach also is useful. The current long-term stochastic baseline maintained at the University of Missouri shows similar but somewhat smaller effects in moving from the $8 coverage level to the $9 coverage level.

Over the 2018 to 2028 period, the $8 coverage level is estimated to trigger 37 percent of the time with an average payment of 85 cents per cwt. of production history. Meanwhile, a $9 coverage level is estimated to trigger 49 percent of the time with an average payment of $1.28 per cwt. of production history covered by the program.

Besides the higher coverage levels offered in these farm bill alternatives, both versions offer cheaper premiums than the original 2014 MPP-Dairy program. Under the 2014 Farm Bill, the lowest premium for the $8 coverage level was 47.5 cents per cwt. of production history covered. Under the Senate and House version of the 2018 Farm Bill, premiums for $9 are at most 18 cents per cwt. of production history covered. This is a substantial premium discount relative to the originally passed MPP-Dairy.

The combination of higher coverage options (which increase the likelihood and magnitude of payments) and cheaper premiums offered in the House and Senate 2018 Farm Bill versions provide a stronger safety net than the MPP-Dairy passed in the 2014 Farm Bill.

It is a worthy exercise for all dairy producers to take time to think about decisions they will make if a conference agreement emerges and ultimately becomes law this year.

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(c) Hoard's Dairyman Intel 2018
July 9, 2018
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