Milk producers’ safety net was a contentious issue during this year’s farm bill debate but now producers can hopefully benefit from the added security provided under the new dairy Market Protection Program (MPP) as the U.S. Department of Agriculture (USDA) formally announced enrollment for the new program.

The voluntary program provides financial assistance to participating farmers when the margin – the difference between the price of milk and feed costs – falls below the coverage level selected by the farmer.

Enrollment begins Sept. 2 and ends on Nov. 28, 2014, for 2014 and 2015. Participating farmers must remain in the program through 2018 and pay a minimum $100 administrative fee each year.

Producers will insure their margins on a sliding scale, and must decide annually both how much of their milk production to cover (from 25% up to 90%), and the level of margin they wish to protect.

Basic coverage, at a margin of $4 per hundredweight, is offered at no cost. Above the $4 margin level, coverage is available in 50-cent increments, up to $8 per cwt. Premiums are fixed for five years, but will be discounted by 25% in 2014 and 2015, for annual farm production volumes up to 4 million pounds. Premium rates are higher at production levels above 4 million pounds.

Jim Mulhern, president and chief executive officer of the National Milk Producers Federation, said USDA could be called the midwife of the new program that it’s worked to have ready by September, but it’s NMPF that has paternity of it.

“Many of the concepts and formulas were demised by NMPF and its members after the dark days in 2009 when producers suffered through the worst collapse in milk prices in modern history,” Mulhern said.

Advocate of the program Sen. Patrick Leahy (D., Vt.) shared despite strong dairy prices now and exceptional dairy exports, it only takes a 1.5 – 2% surplus in milk supplies to take prices into a tailspin. “This is a chance to stop the boom or bust type of situation,” he said.

Secretary of Agriculture Tom Vilsack shared the boom and bust cycle had caused the exodus of many milk producers over the last few years as prices were dropping more precipitous and then resulted in less time to rebound.

Leahy added that it doesn’t create an incentive for overproduction, but rather for sensible production. The law is written in such a way speculators won’t try to overproduce milk and then have the government bail them out.

Program details

Vilsack, Mulhern and Leahy are advising all of the nation’s 46,000 producers participate in at least the free catastrophic level of production of the first 4 million pounds of milk production. The cost is just $100 for the administrative fee.

In order to fully understand how the new program, works, Mulhern also said it’s “going to be a learning curve that isn’t going to flatten out overnight,” but overall NMPF is pleased with the final rule.

Mulhern also welcomed this year’s 90 day signup to allow for the education efforts to inform producers of the new program. In future years, signups will run from July 1 and end on Sept. 30 which will allow for producers to make their decisions “based on the risk profile of their individual operation not what futures markets are indicating,” he said.

He also said farmers have two options on paying the premiums, with the first paying in full upon sign-up or by Feb. 1 of the next year. Payment installments are also an option with 25% due by Feb. 1 and the remaining due by June 1. NMPF had sought an option of more frequent payments to spread out, for instance through a monthly deduction from producer milk checks.

Mulhern said USDA was interested in trying to accommodate that idea, but wasn’t able to initially.

Decision aids

A web-based decision support tool and companion educational materials have been developed to help dairy operators make key coverage decisions for both the MPP and the Livestock Gross Margin-Dairy (LGM-Dairy) insurance program. The tool can be found at: www.fsa.usda.gov/mpptool.

Development of the online resource was led by the University of Illinois, in partnership with the USDA and the Program on Dairy Markets and Policy (DMaP). DMaP partners include the University of Illinois, the University of Wisconsin, Cornell University, Pennsylvania State University, the University of Minnesota, Ohio State University and Michigan State University.

The MPP decision tool is designed with farmers in mind,” said U of I agricultural economist John Newton. “Tool users need only input their milk production history, and then in just four clicks of a mouse, farmer-specific MPP registration forms can be generated.” Newton said that the tool is also optimized to run on a wide platform of electronic devices.

Newton said that for dairy operators who would like to use their own expectations of milk, feed, and margin price risk, the MPP decision tool will soon include an advanced interface that will allow dairy operations to self-select all 48 milk and feed prices to determine how MPP may function to smooth dairy production margins.

“Another helpful feature is that when dairy operators use the MPP decision tool, with one click of the mouse they can easily toggle between the MPP web tool and the LGM-Dairy Analyzer ©, which they can use to examine forthcoming insurance contract offerings and anticipated premium costs,” Newton said.

In partnership with NCPE, DMaP will host five Train-the-Trainer workshops across the United States, including one on Sept. 11 in Chicago.

NMPF will also be updating its www.futurefordairy.com website with relevant information for farmers, including a spreadsheet of historical margin trends, and an online calculator that will allow farmers to enter pricing and production data to help them select insurance coverage levels in the future.

Read more about MPP in this backgrounder provided by NMPF.