Dairy farmers using safety net program declines

Published 10:02 am Wednesday, June 21, 2017

The number of dairy farmers using the 2014 Farm Bill’s Dairy Margin Protection Program is the lowest it’s been since the program was introduced, according to a recent report by the U.S. Department of Agriculture’s Farm Service Agency.

For the 2017 calendar year, 20,314 dairy operations covering 128 billion pounds of milk are enrolled in MPP. Those totals represent approximately 49 percent of licensed dairy operations and 64 percent of U.S. milk production in 2017.

Improving the dairy protection program is one of American Farm Bureau Federation’s priorities for the 2018 Farm Bill. The 2014 Farm Bill eliminated milk price safety net programs for dairy producers and introduced the MPP instead.

The MPP is an insurance-style safety net program that makes payments to dairy producers when their milk prices minus their feed costs fall below the margin coverage levels the farmers choose. The program is designed to address catastrophic conditions as well as prolonged periods of low margins. Margins are calculated monthly by the U.S. Department of Agriculture, and average feed costs are determined with a national calculation that reflects the cost of feeding dairy animals on a hundredweight basis.

Farmers pay a $100 annual registration fee and select protection coverage from $4 per hundredweight. Above the $4 level, coverage is available for varying premiums up to $8.

Last year, U.S. dairymen paid almost $100 million in premiums but received only $12 million in coverage. In Virginia in 2015, dairy farmers paid almost $1 million in premiums but received only $26,505 in payments.

Much of the milk enrolled in MPP for the 2017 coverage year is at the catastrophic coverage level only.

One reason for the decline in MPP participation was that national average MPP feed costs have declined 23 percent since the program was introduced. With feed prices expected to remain low and milk prices improving, the likelihood of MPP making program payments in 2017 was low. Therefore, many farmers opted for the free catastrophic coverage level of $4 per hundredweight.

Another reason, the USDA report said, is that the program has not met the expectations of dairy producers.

“MPP doesn’t protect the full operating margin, only feed; so the coverage is very limited,” explained Tony Banks a Virginia Farm Bureau Federation commodity marketing specialist. “Approximately half of Virginia dairy farmers are participating in MPP at the minimum catastrophic coverage level. Most would like to see a return to revenue protection coverage.

“Many Virginia dairy farmers produce their own feed, and the recent droughts they’ve experienced added to their feed cost without ever being captured by the MPP margin calculation, which relies on national averages,” Banks added.

AFBF is proposing a Dairy Revenue Protection program that would allow farmers to select the milk price mix used for their revenue protection. For example, a farmer delivering to a cheese plant could put more protection on the Class III cheese milk price, and a farmer shipping to a butter plant might choose to put more coverage on the Class IV butter-powder milk price. By allowing coverage to mix between milk classes, a farmer can better capture his farm-level milk price risk exposure, Banks explained.