Should you utilize dairy margin protection?

Dairy cattle

The Dairy Margin Protection Program, developed and launched as part of the 2014 farm bill, is considered a major disappointment in the dairy community.

Changing from an industry-wide price support program to an individual-farm margin protection program, farmers could choose to “protect” a $4 per hundredweight (cwt.) difference between the all-milk price and a calculated feed cost for a $100 per year enrollment fee.

If you desire to protect a higher margin, then you can “buy up” coverage to protect up to an $8 per .cwt margin. Turns out that “disappointment” is a proven evaluation as the program provided little or no support in 2015 or 2016, back-to-back poor years.

Buying coverage

Overall, most farms that “bought-up” coverage were lucky if they recouped the cost of the additional premiums, which ranged from a penny to $1.36 per .cwt, depending on how much milk a farm produced and the coverage level desired.

While the sign-up for 2018 (currently the final year of the program depending on the next farm bill) was originally set to begin this July, it was delayed until Sept. 1 and will continue through Dec. 15, 2017.

The original program rules stated that once a farm enrolled in the program, the farm was committed to at least minimum participation through 2018. That meant that the farm would pay at least the $100 per year administrative fee plus any additional premiums if they desired a higher level of margin protection each year.

While industry groups such as the National Milk Producers Federation are putting forth proposals for improving the program as the next farm bill is debated, Agriculture Secretary Sonny Perdue was able to change the annual participation requirement for 2018.

Not participating

This change allows farmers who signed up to participate before 2018 the opportunity to not participate in 2018, saving them the $100 annual administrative fee. The proposals for change seek to address the serious deficits in the calculation of feed costs, which are underestimated in the current model.

The original farm bill proposals calculated a more representative feed cost but were adjusted so the plan would potentially cost less. It worked. However, any reworks also need to consider the regional differences in feed costs as well as the validity of the base calculation.

Two decisions

If you participated in the Dairy Margin Protection Program in the past four years, you have one or two decisions to make between now and Dec. 15.

Decision No. 1: will you participate at all? If you do not want to participate, then there will be no administrative fee, and no protection (little as that has been.)

Let your local FSA office know that you will not be participating.

Decision No. 2: If you choose to participate, pay the $100 administrative fee and protect a $4 per .cwt margin on 90 percent of your base production.

Finally, decide if you want to protect a margin above $4 per .cwt and use the decision tool to look at predicted margins and costs.

While current projections show margins above $8 per .cwt through July 2018, staying in and paying the $100 administrative fee for the final year would provide some very cheap catastrophe-level insurance.

Contact your local Farm Service Agency office and let them know what your decisions are for 2018 before the Dec. 15 deadline.

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