The 2018 Farm Bill recently passed by Congress offers significant changes to the dairy safety net relative to the safety net included in the 2014 Farm Bill. These changes are in response to the many concerns voiced regarding the effectiveness . . . or the ineffectiveness . . . of the safety net in the Margin Protection Program for Dairy (MPP-Dairy) passed in the 2014 Farm Bill.

New name
The modifications made to MPP-Dairy in the 2018 Farm Bill, now called Dairy Margin Coverage (DMC), significantly strengthen the safety net features of the program. Dairy farmers should examine carefully their participation in the DMC program given the new features and flexibility it contains.

The DMC program offers expanded margin protection coverage levels up to and including $9.50 per hundredweight (cwt.) on an operation’s first 5 million pounds of annual production history. The added levels of enhanced coverage allow dairy farmers to purchase strengthened protection against low margin periods. The DMC margin will be calculated on a monthly basis (this had been bimonthly under MPP-Dairy) and continues to use the same calculation originally passed in the 2014 Farm Bill.

Protect 5 to 95 percent
Dairy producers will find more flexibility in their choice of the percentage of their production history to cover since they can choose in 5 percent increments of coverage from a range of 5 to 95 percent. The change to 5 percent increments allows larger operations to have more flexibly to cover their first 5 million pounds of production history at the lower tier 1 premiums without needing to cover any production history at the higher tier 2 premiums. Overall, this provision likely will raise the percentage of production history eligible to 95 percent, providing a means for additional milk to be covered.

Reduced premium costs
Premiums at the tier 1 level, the first 5 million pounds of production history, are lower at the higher coverage levels than was the case under the MPP-Dairy program. Further premium discounts are available if a producer signs up for five years.

For example, the DMC $8 per cwt. premium cost is 10 cents per cwt. in comparison to the 47.5 cents per cwt. premium cost under the original MPP-Dairy. The $9.50 coverage level available on the first 5 million pounds of production history has a premium of 15 cents per cwt. If a dairy farmer signs up for all five years of the new farm bill, those premiums are reduced to 7.5 cents ($8 coverage) and 11.25 cents ($9.50 coverage).

The best option in years
The combination of lower premium costs, the added flexibility in production history covered, and higher margin protection levels results in a much more effective safety program than the dairy industry has had in some time. It is time for dairy producers of all sizes to consider their use of the DMC program in their risk management strategy.

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(c) Hoard's Dairyman Intel 2018
December 17, 2018
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