American dairy farmers will have an additional two weeks to sign up for new safety net provisions under the 2014 Farm Bill. The new deadline to sign up for the Margin Protection Program is Dec. 19.
The Margin Protection Program replaces the Milk Income Loss Contract Program, or MILC. It provides dairy producers coverage in the event of low margins that could come as milk prices fall and feed prices increase.
The margin protection program offers dairy producers:
Catastrophic coverage, at no cost to the producer, other than an annual $100 administrative fee; and,
Various levels of buy-up coverage. Catastrophic coverage provides payments to participating producers when the national dairy production margin is less than $4.00 per hundredweight (cwt).
The national dairy production margin is the difference between the all-milk price and average feed costs. Producers may purchase buy-up coverage that provides payments when margins are between $4.00 and $8.00 per cwt. To participate in buy-up coverage, a producer must pay a premium that varies with the level of protection the producer elects.
The National Milk Producers Federation applauds the move by the U.S. Department of Agriculture.
“With a busy harvest season now done, along with this year’s favorable milk prices, many dairy farmers are just now taking the time to review their options and explore the need for the new MPP program,” said NMPF President and CEO Jim Mulhern.
The 2014 national Class 3 milk price average will likely be above $20 per hundredweight (cwt) when the December price is reported. The national price does not necessarily reflect California milk prices as California has its own state milk marketing order and dairy classing structure.
Mulhern expects the national all-milk price in 2015 to be lower than what producers saw in 2014. Class 3 (cheese) milk prices in 2014 peaked at $24.60 per cwt. in Septmeber. The December Class 3 price has not yet been reported.
As a result of the lowering prices Mulhern says the news “should prompt many farmers to consider their risk management options should prices drop further.”
Mulhern cited the crash in oil prices in recent weeks as an example of where sudden price changes in a commodity can catch many by surprise, adding that “no one expected oil prices would drop by 40 percent in just a few months, but sudden movements either up or down are a frequent occurrence in commodity markets.”
In addition, Mulhern said, with U.S. milk production expected to increase by more than one percent this year, signing up for MPP boosts an individual farm’s production history going forward by the same amount as the national increase.
“MPP payments are based on past production, and that production history increases only with the rise in national milk production,” Mulhern said. “As a result, those who sign up now for 2015 coverage will benefit from this year’s increase in milk production, allowing them to insure a larger base in the future.”
NMPF has a variety of tools on its website and on a separate website devoted exclusively to the new program to help producers make their decisions. Included is a downloadable calculator on which producers can plug in their own numbers and get a sense of the program’s impact on their farm. Farmers who have already enrolled have the opportunity to change their coverage levels until Dec. 19.
“Basic coverage costs farmers only $100 a year,” Mulhern said. “That relatively small investment does a lot to protect the future of a farm. We encourage all producers to take advantage of USDA’s deadline extension and get to their county Farm Service Agency office to sign up for the Margin Protection Program in the next two weeks.”