The first rule of the Margin Protection Program for Dairy or MPP-Dairy is that you cannot count on it to save you. It is in place for when things get really bad for a long period of time.
In my opinion, the national Margin Protection Program for Dairy is not an investment opportunity and hardly considered a safety net. I have heard of people purchasing protection at the highest levels hoping that the national margins would be low enough that it would trigger a payment. Spoiler alert, it doesn’t work. The majority of the time the amount of money you have to put in to purchase the coverage is way more then you will ever get back, even if it does trigger a payment. It’s a gamble, and we work too hard to gamble our money.
As farm owners we need to create our own protection program to ensure our longevity as a business. We need to start being aggressive with our risk management practices. With that being said, here are a few guidelines when you start looking at a Margin Protection Program for Dairy of your own.
If you want to manage your risk you need to start between your own fence posts. First manage the money that you have. Live within your means. If you cannot afford it, you can’t afford it. This is by far one of the hardest rules to live by. The debt serviced per capita in the United States shows that clearly.
Play the markets. Pay attention to the markets and take advantage of prices that will keep you in the black. When looking at future markets you have to be content with not hitting all the highest prices. It’s hard pulling the trigger when there is a chance that the market may continually lean in your favor. Don’t shoot for big money but instead aim for safe money.
If you are going to start locking in future contracts remember to lock in both feed and milk. Feed and milk prices are the driving factors of your business. Why would you not protect yourself on both fronts? If you know what your breakeven is then it should be quick work to find a price on both your feed and milk that complement each other and keep you cash flowing.
It is time to sharpen your pencil and start doing some hard math. Are you ready?
Tyler Ribeiro is a fourth-generation dairy farmer born and raised in California. He is currently partners with his father at Rib-Arrow Dairy in Tulare where they proudly ship their milk to Land O’Lakes. Tyler is actively involved in the dairy industry, holding leadership roles in various organizations locally and across the United States.