USDA advances Dairy Margin Protection Program while some questions remain

By Agri-Pulse staff

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, July 23, 2014 - The 2014 Farm Bill directs USDA's Farm Service Agency (FSA) to roll out the Margin Protection Program (MPP) for dairy producers no later than Sept. 1, and there's no reason to believe it won't be on time, or at most a day late.

“The rule is going through departmental clearance, and the timeline hasn't changed,” says a spokesperson for the FSA, which is in charge of implementing the MPP.

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“I think USDA will pay as much attention to Congressional intent as it possibly can,” says University of Wisconsin dairy economist Mark Stephenson. While USDA could issue a final rule with a comment period, Stephenson doubts that will happen. The Milk Income Loss Contract Program (MILC) was issued as a final rule, with the caveat that it could be changed at a later date. The MPP replaces the MILC program and the Dairy Product Price Support Program.

Since Sept. 1 is Labor Day, “I assume implementation will start on September 2,” says Jaime Castaneda, senior vice president for strategic initiatives and trade policy for the National Milk Producers Federation (NMPF). “We don't see any particular issue delaying the implementation of the Margin Protection Program.”

Like an insurance policy, the MPP allows dairy producers to protect a portion of their production against catastrophically low margins caused by depressed milk prices, high feed costs, or a combination of both. Margins, which will be calculated monthly by USDA, are defined simply as the all-milk price minus the average feed cost. Margins slipped toward $2 per hundredweight (cwt.) in 2009 and 2012, sparking calls for a more useful safety net.

Paid by taxpayers, the MPP provides the first $4/cwt. of margin coverage for free on a predetermined level of production. To cover margins at a higher level, up to $8/cwt., producers pay half the cost of the protection.

The decision as to whether to sign up for the MPP will not be as simple as it was for the MILC program, says Stephenson. “But it is not as complicated as a lot of people think it is either,” he adds. Producers will need to determine how much milk to protect, then sign up through their local FSA office during the designated sign-up period, which should last at least a couple of weeks, according to sources.

“At this point, we're waiting to see where USDA comes down on some of the questions that we have been asking - since Congress' farm bill language left several points open to the interpretation of USDA. I wouldn't call them potential pitfalls, just issues in need of final clarification from the department,” says Chris Galen, senior vice president of communications for NMPF.

One of biggest unknowns is whether the program will become effective in 2014 or early 2015. Other questions include whether FSA will allow producers to insure different levels of production at varying margins and how new entrants, those who lease their operations and those who are selling their operations will be handled.

Wisconsin's Stephenson points to yet a another unknown: “Is the decision between the Milk Protection Program and the Livestock Gross Margin program a one-time decision that you make up front? Or do you make it every year?”

Stephenson does not think producers will be under any market pressure to insure their operations above the government-supported $4/cwt. level, given current dairy farm margins. As calculated under the program, margins are currently more than $12/cwt., well above the $8/cwt. trigger established by the program. Using futures prices to calculate margins through mid-2015, Stephenson says dairy margins are unlikely to drop below $11/cwt. “Unlike fire protection or storm insurance, producers will be able to project ahead,” says Stephenson. “With milk and feed prices, you have some idea what the year ahead will look like.”

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