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Making decisions for next year

Progressive Dairyman Editor Walt Cooley Published on 06 November 2014

The time to sign up for new, government-sponsored margin insurance is drawing to an end.I throw in the “government-sponsored” just because “too much government involvement” in the program is the biggest concern producers have about it.

That’s according to recent survey results from Marin Bozic and Chris Wolf. (The survey results referenced in this commentary are all from Bozic and Wolf’s “ What Do Producers Think about the Margin Protection Program? ” white paper, published Oct. 3.)

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By Nov. 28, you’ll need to have made the decision as to whether you will participate in the program for next year. By participate, of course, we mean that you will pay a $100 fee to sign up for at least the most basic or “free” coverage.

That catastrophic coverage would kick in when a two-month average national milk margin fell below $4 and would pay you the difference between that margin and the $4 trigger level on one-sixth of your milk production base.

I’ve heard some dairymen describe this most basic margin protection as a “cheap lottery ticket.” Twenty-eight percent of producers in a recent survey said they would likely choose this level of coverage. A margin below $4 has only happened 7 percent of the time during the last 14 years.

We’ve included several articles in this issue looking at the program from different angles.

First, there’s the angle of which form of government-sponsored insurance is right for your farm. The article here reviews the Dairy Margin Protection Program versus the already existing Livestock Gross Margin for Dairy (LGM-Dairy) program. You can’t have an insurance policy with both of them.

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So if you have used an LGM-Dairy policy before, you’ll want to read this article to determine if the new MPP program is better than what you’ve had before. Once you decide to switch, you can’t go back. Seventy percent of current LGM-Dairy users surveyed intend to switch.

Second, there’s the angle of East versus West. When the blueprint for the current program was first released, this is one of the first conflicts that ignited. How equitable could a program be that used a national average of feed prices, not regional data, to calculate income over feed costs?

The answer was then, and remains still today, that it isn’t. Click here to read the article for a breakdown of how margin insurance would fare differently for dairies of average size in Western states versus dairies of average size in Eastern states.

I call attention to the article not to stir up animosity but rather to help readers understand how the new margin insurance may impact you during periods of low prices. Some have said the program is likely to extend those periods. At least 30 percent of producers believe it will “distort market signals to farmers.” After reading this article, I believe both to be true.

Finally, there’s an article here about how all of these government-sponsored insurance policies play out against the backdrop of private margin protection. Notice I didn’t use the word insurance in this instance.

As is obvious from the disclaimers that follow the advice of brokers sharing their opinions in this magazine, this type of protection “involves significant risk of loss” to go along with the potential gains that may be even higher than the $8 margin ceiling provided by MPP insurance.

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If you’ve not yet decided what to do, I hope these articles help you make up your mind. And if you have decided what you’ll do, let us know your choice by voting in our current poll.

Also, don’t forget to check out the current national margin on pg. 11 of the print or digital version of this issue. For more than 18 months now, we’ve been publishing the margin data. It’s one of those pages in the magazine that we believe will be a destination place every issue.

The rest of this issue deals with long-term business planning and facility design topics, which in any other year would be headline items themselves. It’s a packed issue. Digest it well. PD

  • Walt Cooley

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