Dairymen, consider the new Dairy Margin Coverage Program

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Farmer milking cows
Farm and Dairy file photo.

Once in a while, it is nice to catch a break — and breaks have been hard to find in the cow-milking business for a while now. So, put on your catcher’s mitt because it is nearly time to play ball.

The Farm Service Agency plans to open the sign-up period June 17 for the newly renovated Dairy Margin Coverage (DMC) Program, re-named and re-configured in the 2018 farm bill. The changes you will see in the DMC program attempt to fix some of the problems that rendered the Dairy Margin Protection Program largely ineffective until initial adjustments were implemented last year.

What’s new

Two of the biggest changes that will positively impact farms of all sizes include:

1) adding 3 new margins, $8.50, $9.00 and $9.50, at reasonable premiums, and

2) allowing farms with base production of more than 5 million pounds to make a second margin election for pounds over the first 5 million.

There are also opportunities to recover program participation net losses from 2014, 2015, 2016 or 2017. Repayment can be received either as cash (50% of the loss) or by applying it to premiums for participation in this year’s program (75% of the loss).

So, if a farm purchased $6.50 margin coverage in 2016, paid a premium of $3,500 and received a total indemnity payment of $500, they had a $3,000 net loss.

The farm could choose to receive half the difference or $1,500 as a cash payment. The other option is to receive $2,250, or 75% of the amount, as a credit toward premiums for Dairy Margin Coverage Program participation.

If you participated in any or all of those years, you will receive notification from your Farm Services Agency office with your amounts and options.

Think about it

So why should you step up to the plate? Just like last year, when sign-ups were re-opened for the updated program, sign-ups for 2019 will open well after January, but participation will be retroactive to Jan. 1.

When the sign-up period opens June 17, we will know exactly what the margins will be for January ($7.99), February ($8.22), March ($8.85), and April. Sign-ups will end Sept. 20, so you could wait and know what the actual margins are through at least July.

No need to wait

For farms with up to 5 million pounds of base production, indemnity payments for January through March more than cover the premiums at the highest ($9.50) margin.

Example: Base milk: 5,000,000 pounds (about 200 cows).

Farm elects to cover 95% of their base, or 4,750,000 pounds, or 47,500 cwt.

Coverage level selected: $9.50 margin costing 15 cents per cwt.

The program assumes that production is equal across months, or 47,500/12 = 3,958 cwt. per month. Because we know the January, February and March margins, we can calculate the current indemnity payments:

Jan. $1.51 x 3,958 cwt. = $5,977

Feb. $1.28 x 3,958 cwt. = $5,066

March $0.65 x 3,958 cwt. = $2,573

Total payments = $13,616

Less

6.2% Sequestration = $ 844

Administration fee = $ 100

Premium = $ 7,125

Difference = $ 5,547

Since the sign-up is retroactive to Jan. 1, we know that not only will the known indemnity payments cover all program costs, we also know there will be net positive dollars to help pay a few bills.

How many total net dollars for 2019 is unclear and changing.

Two weeks ago, projections indicated that there would be announced margins less than $9.50 well into the summer. If recent milk market rallies hold and show up in milk checks, then there could few or no further indemnity payments. We all hope that will be the case!

Online calculator

A new DMC Decision Tool, which incorporates the changes legislated in the 2018 farm bill is now up and running at https://dairymarkets.org.

This is a very handy tool that allows farmers to enter their historic production (still starts with the highest of 2011, 2012, or 2013 production — verify your current production history with your FSA office) and explore the cost and potential returns of different coverage percentages and levels.

OSU Extension and FSA offices will be working together and offering educational programs before and early in the sign-up period to review the changes and options for farmers. Look at the options for your farm.

Batter up.

STAY INFORMED. SIGN UP!

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