While the budget bill signed by President Donald Trump earlier this month made changes to the Margin Protection Program for Dairy (MPP-Dairy), details remain to be worked out before the 2018 enrollment period reopens.

Natzke dave
Editor / Progressive Dairy

Also this week, U.S. Rep. Collin Peterson (D-Minnesota), House Ag Committee ranking member, hinted provisions in a draft of the 2018 Farm Bill will make further MPP-Dairy adjustments in 2019, including raising the top insurable milk income margin to $9.50 per hundredweight (cwt).

2018 enrollment details still being finalized

As of Feb. 20, Wayne Maloney, in the USDA Farm Service Agency (FSA) public affairs office, said FSA staff were finalizing enrollment details and preparing a fact sheet concerning the new MPP-Dairy provisions.

The sign-up period will be for 90 days, but exact dates had not yet been announced. Timing could be critical: Based on current projections, lowest milk income margins will be in February through May 2018.

Remaining questions include whether coverage is effective immediately upon sign-up; whether buy-up coverage will be available retroactive to January or only going forward; and whether the reduced premiums will be for the full 12 months of 2018 or prorated starting at some point in February. (Watch the Progressive Dairyman website or check with your local FSA office for details as they become available.)

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The National Milk Producers Federation (NMPF) has also asked USDA to make a special provision for farmers who may have opted out of MPP-Dairy and purchased LGM-Dairy policies. The current farm bill does not allow farmers to participate in both programs.

For other details, read Dairy safety net: Some help arrives, some questions remain.

Among things that haven’t changed in MPP-Dairy under the budget bill, however, are Tier 2 premiums. That means larger dairy producers will not see margin protection cost reductions on milk production in excess of 5 million pounds, creating questions. In addition to keeping coverage cost-prohibitive on milk production over 5 million pounds, it also raises an issue concerning minimum milk production coverage requirements, according to Geoff Vanden Heuvel, board member and economics consultant with California’s Milk Producers Council.

MPP-Dairy allows a producer to cover between 25 percent and 90 percent of annual milk production. If a herd produces 20 million pounds of milk per year (the production from about 850 “average” cows), coverage at the 25 percent level equals 5 million pounds, fitting in the lower Tier 1 premium schedule.

A producer with more than 850 cows or annual production history of more than 20 million pounds may not be able to meet the 25 percent minimum coverage threshold at 5 million pounds. So they may have to buy coverage on additional milk – at Tier 2 premium levels – to meet the 25 percent minimum.

At an $8-per-cwt margin protection level, the difference in Tier 1 (14.2 cents per cwt) and Tier 2 ($1.36 per cwt) premiums is large.

“That gets very expensive, very fast,” said Vanden Heuvel. He urged a review of “buy-up” provisions in the 2018 Farm Bill.

Higher insurable margins ahead?

The budget bill revisions also did not change the feed cost adjuster used in MPP-Dairy calculations. Those calculations – implemented at the last minute by Congress in the 2014 Farm Bill – have been a major criticism of the program. Critics charge current formulas do not reflect true feed costs, artificially increasing reported margins and keeping them above indemnity payment triggers.

Speaking at a FarmFirst Dairy Cooperative annual meeting in early February, Shawna Morris, NMPF vice president of trade policy, said one means to address the margin discrepancy might be to seek to raise the top margin level eligible for buy-up protection, from the current $8 per cwt to $9 per cwt.

According to a spokesperson in Peterson’s office, the 2018 Farm Bill proposal moves that even higher, to $9.50 per cwt. At that level, the probability of dairy farmers eligible for indemnity payments could rise dramatically.

A draft of the farm bill is expected to be released in March and, if approved, the higher insurable margin wouldn’t be available in 2018. Based on current projections from the Program on Dairy Markets and Policy, estimated margins using MPP-Dairy formulas will be under $9.50 for all of 2018, and could be below $8 per cwt from February through August. Historically, MPP-Dairy margins were below $9.50 per cwt during 11 months in 2015, 10 months in 2016 and six months in 2017.

Other resources

Dairy economists Andrew Novakovic, professor at Cornell University, and Mark Stephenson, director of dairy policy analysis at the University of Wisconsin – Madison, have compiled a briefing paper detailing changes to MPP-Dairy.

With the 2018 MPP-Dairy enrollment period reopening, and Tier 1 premium costs sharply reduced (see Table 1), a decision aid tool will be updated on the Program on Dairy Markets and Policy website.

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Every farmer must evaluate their own risk level and make their own decision, but the reductions in the Tier 1 premiums warrant a second look at enrollment and coverage decisions, Novakovic and Stephenson note.

The paper offers four examples of herds and MPP-Dairy coverages at all margin levels, based on predicted income margins using milk and feed futures prices as of Feb. 14. The examples estimate net benefits for 80-cow and 220-cow dairies averaging 23,000 pounds of milk per cow and each electing to cover 90 percent of total annual milk production, and two 500-cow dairies each averaging 25,000 pounds of milk per cow but electing to cover 90 percent and 40 percent of annual milk production, respectively.  end mark

Dave Natzke