By Annie AcMoody, MS, Director of Economic Analysis
Oct. 24, 2014 – – From “this is fantastic!” to “this is the worst thing ever!” it feels like I have heard it all regarding the Dairy Margin Protection Program (MPP). As wide ranging opinions are likely to keep surfacing at coffee shops throughout the state, I thought this would be a good time to point to a few reminders regarding the program. First, the deadline to sign up with FSA for 2014 and 2015 is November 28. While this may seem far away, if you have not started familiarizing yourself with the program, now would be a good time to do so before you get caught up in Thanksgiving pie baking. The lowest cost to participate is an administrative fee of $100 per year so I think it is worth looking into.
Before you go to FSA to sign up, you will need to decide a few things. First, you will need to select the percentage of your production history (the highest of your annual milk production for 2011, 2012 and 2013) you want to cover. The MPP allows you to cover between 25% and 90% of your production history in 5% increments. Second, you will need to select a coverage level. This means you will have to choose the margin level you want to protect, and you can do so in 50-cent increments, between $4 and $8. The margin is the difference between the U.S. all-milk price and a feed cost formula based on national corn, soybean meal and alfalfa hay prices. It is not based on our own operation’s margin, so having an idea of how your own margin compares to the formula may help you determine how this program may work for you. The drought in California is also important to consider as our feed cost statewide may behave differently than the rest of the country. The cost to participate in this program varies depending on the coverage level you select. The range goes from no premium at $4 to $1.36/cwt at the $8 level, with production history under four million pounds benefiting from a cheaper premium rate at every level above $4.
It is important to mention that once you sign up for MPP, you will need to participate every year thereafter, at least at the minimum level ($4 margin, which will cost $100/year). It is also important to point out that if you have been using LGM-Dairy contracts, you will have to make a decision between the two programs. And once you select MPP, you cannot go back to LGM until the end of this Farm Bill (2018).
Currently, forecasted margins point to no payment being triggered in 2015. Those will change as we get closer to the sign up deadline. A word of caution: those forecasts are based on current market conditions so by the time we roll into the second half of 2015 (which will then be too late to change your coverage decision), the situation could be completely different than what is currently expected. At a minimum, it would be very prudent to sign up at the $4 level. For more information on MPP, you can look atwww.westernuniteddairymen.com for a power point and relevant links.