August 29, 2014 – Agriculture Secretary Tom Vilsack announced the official startup of the Farm Bill’s new Dairy Title, the Dairy Producer Margin Protection Program (MPP), in a media conference call this morning. He and one of the Bill’s champions, Vermont Senator Patrick Leahy, emphasized how the program was designed to help “small to medium size dairy operations” by protecting dairy margins as opposed to previous programs designed more to protect prices. Signup will run September 2, 2014 to November 28, 2014 for the last four months of 2014 and all of calendar year 2015. Future signups will run July 1-September 30 and the next available signup will not be until the summer of 2015. Details are available from local Farm Service Administrative offices and State University Extensions. Vilsack also pointed to an online program at www.usda.gov/farmbill or www.usda.gov/mpptool. A National Milk press release adds there is a $100 sign-up fee for each calendar year, which qualifies a farmer to receive free, basic margin insurance coverage. Once farmers pay that fee, they are enrolled in the MPP for its duration, through 2017, and must annually pay at least the $100 fee.
The MPP allows farmers to protect the margin between milk prices and feed costs. 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.
“Importantly,” says NMPF, “USDA agreed with NMPF that the lower premiums will apply to the first 4 million pounds of a farm’s enrolled annual milk production, regardless of the farm’s total production. For example, a farm with an annual production history of 8 million pounds that elects to cover 50% of its production history would pay the lower rate on all 4 million pounds enrolled in the program. Farmers will be able to change their coverage (the percentage of milk insured, as well as margin level) on an annual basis, with USDA establishing a 90-day enrollment window of July 1-Sept. 30 each year after 2014.”
The MPP’s margin definition is the national all-milk price, minus national average feed costs, computed by a formula NMPF developed using the prices of corn, soybean meal, and alfalfa hay. Farms in the program will be assigned a production history consisting of their highest milk production in either 2011, 2012 or 2013. A farm’s production history will increase each year after the farm first signs up based on the average growth in national milk production. Any production expansion on an individual farm above the national average cannot be insured.
When the margins announced by USDA for the consecutive two-month periods of Jan.-Feb., Mar.-Apr., May-June, etc., fall below the margin protection level selected by the producer (from $8/cwt. down to $4), the program will pay farmers the difference on one-sixth (or two months’ worth) of their production history at the percentage of coverage they elected to insure. Premiums must be paid either in full at sign-up, or 25% by February 1, with the remaining 75% balance to be paid by June 1. NMPF had urged USDA to provide greater flexibility on producer premium payment, such as through milk check deductions.
NMPF President and CEO Jim Mulhern said; “While USDA advised us they did not have time to set up such a system for the initial launch of MPP, we will continue to work with the department in an effort to modify this feature for future years. The new Margin Protection Program is more flexible, comprehensive and equitable than any safety net program dairy farmers have had in the past,” Mulhern said. “It is risk management for the 21st century, and we strongly encourage farmers to invest in using it going forward.”
A second part of the MPP is a dairy product donation program that is triggered when margins collapse. The program purchases dairy products to give to food banks and, unlike the previous Dairy Price Support Program, does not store dairy products but purchases them to give away. The program also provides export and marketing incentives.
NMPF President and CEO Jim Mulhern stated in his teleconference that this bill represents “four years of consensus building” and that he is “pleased with the result,” but added “there’s still more work ahead.” He said the biggest focus now is outreach to farmers to help them understand and use this new program and NMPF will develop a variety of tools to that end.
Lots of MPP Help is Available
The latest posting on the FarmDocDaily website looks at the announcement of the new Margin Protection Program (MPP) for Dairy Producers. The program is effective September 1, 2014 and dairy farmers may enroll beginning September 2, 2014.
To aid dairy operators in the decision process the U.S. Department of Agricultural, Farm Service Agency, the University of Illinois as the lead for the National Coalition for Producer Education (NCPE), and the National Program on Dairy Markets and Policy (DMaP) partnered to develop a web-based decision support tool for MPP and the Livestock Gross Margin-Dairy (LGM-Dairy) insurance program. DMaP has a 30-year history in the development of decision aids and producer outreach initiatives related to the dairy industry and dairy farm risk management. Working with NCPE, DMaP has taken the lead role in developing the MPP and LGM-Dairy decision tool.
As a culmination of this effort, DMaP has introduced the MPP Decision Tool to help dairy farmers and other interested parties make key coverage decisions for the MPP and LGM-Dairy programs.
Access to the MPP Decision Tool, and other educational material, is available at the following websites:
A brochure identifying the features of the MPP Decision Tool is available here: brochure.
The MPP Decision Tool was designed to be easy to use and is optimized to run on all electronic devices including home PC, smart phones, and tablets using Windows, iOS, and Android operating systems. Additionally, only one data point is need from the dairy producer to use the decision tool for the MPP decision. The only data point needed is the dairy operation’s production history.
Dairy farmers can use the MPP Decision Tool in as few as 4 clicks of the mouse:
Click 1: What is Your Production History? The dairy operation’s production history is defined as the maximum calendar year milk production during 2011, 2012, and 2013. This is the only data point needed in order to generate unique MPP Decision Tool results with respect to MPP. The decision tool includes a downloadable form to help determine production history.
Click 2: Evaluate MPP Margin Forecast. Each day price forecasts of the dairy production margin are generated using CME Group futures market data. This information is used to forecast the probability of MPP payments for all 126 coverage options for the coverage year.
Click 3: Select a Coverage Level Threshold and Coverage Level Percentage. Different coverage options reflect a producer’s ability to generate different margin levels (from $4 to $8 per hundredweight) and different coverage percentages (from 25% to 90%).
Click 4: Print Registration Forms. Tool users can elect a coverage level and coverage percentage and then print their farm-specific USDA FSA registration forms directly from the MPP Decision Tool. Alternatively, users on a mobile device can generate a PDF file displaying their coverage options selected from within the MPP Decision Tool.
After this 4-step process dairy farm operators can easily view and print for all 126 coverage options: (i) the total premium costs and administrative fee; (ii) forecast MPP payments to be made during the coverage year; and (iii) net MPP benefits (defined as the MPP payment minus the premium and administrative fee).
To highlight the risk management approach that needs to occur during the registration and coverage modification process, dairy farmers using the MPP Decision Tool have the ability to analyze historical U.S. milk and feed prices. This feature is for research purposes only, but provides the opportunity for dairy farmers to go back in time to determine how MPP would have worked as a risk management instrument had it been in place during prior years.
For dairy operators who seek 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.
With respect to LGM-Dairy, the MPP Decision Tool makes moving between MPP and LGM-Dairy a one-click solution. MPP Decision Tool users simply click the “MPP” or “LGM” option to toggle between the two web interfaces. The MPP Decision Tool incorporates the award winning LGM-Dairy Analyzer ©. LGM-Dairy Analyzer © is the sole software system available that allows dairy farm operators and insurance providers to examine forthcoming insurance contract offerings and anticipated premium costs. LGM-Dairy Analyzer © is used extensively by insurance providers and dairy farm operators across the U.S.
DMaP, as a partner with NCPE looks forward to serving all of America’s dairy producers by providing timely and accurate analysis of risk management options. To complement this effort, DMaP will host five Train-the-Trainer workshops across the U.S beginning September 9, 2014 (see Train the Trainer). Additionally, members of the DMaP team and other educators and trainers will conduct meetings geared to dairy farmers to help them learn to use this exciting new tool (see State Meetings).
As part of the educational effort DMaP will soon release a series of online materials including web videos, PowerPoints, printed materials, and links to other online 2014 Farm Bill decision tools. This material will provide farmers with MPP specific information such as: (i) learning how to calculate their own dairy production margin; (ii) learning how MPP dairy can be integrated into the existing suite of risk management options; and (iii) evaluating unexpected risks in milk and feed markets.
These DMaP educational materials are designed to be flexible to the schedule of the dairy operator or educator. Producers and educators can access the educational materials on their own schedule and needs; additionally, farmers and educators can refer back to these materials as a reference. Links to the supplementary educational material and Train the Trainer Event registration can be found online at: www.dairymarkets.org/MPP.
The MPP Decision Tool uses innovative and new peer-reviewed price forecasting techniques to provide dairy farmers with timely market information on milk and feed price probabilities to help with the MPP and LGM-Dairy decisions (Bozic, Newton, Thraen, and Gould 2014).
The MPP Decision Tool provides dairy farmers the opportunity to use farm specific milk production variables in conjunction with daily futures prices on milk and feed as part of the consideration for coverage-level choices under MPP and LGM-Dairy. The MPP Decision Tool calculates USDA commodity price estimates and then uses historical correlations among milk and feed prices in a simulation to estimate the financial returns from MPP for farmer-selected coverage options.
With respect to LGM-Dairy, the MPP Decision Tool includes the LGM-Dairy Analyzer © software. LGM-Dairy Analyzer © incorporates the insurance program structure and data obtained from futures markets to provide a farm-level evaluation of the risk management capabilities of the LGM-Dairy program.
The 2014 Farm Bill provides the most comprehensive reform to the U.S. federal dairy farm safety net seen in decades. In place of milk price and revenue support programs the 2014 Farm Bill creates the Margin Protection Program for Dairy Producers. MPP is a voluntary program which places an emphasis on protecting dairy production margins. MPP protects against severe downturns in the milk price, rising livestock feed prices, or a combination of both.
MPP is a flexible program that allows a dairy operator to self-select coverage options to protect the farm against declines in national average production margins. Different coverage options reflect a producer’s ability to protect different margin levels (from $4 to $8 per hundredweight) and different coverage percentages (from 25% to 90%).
To assist in the MPP decision process DMaP has developed a decision tool and companion educational materials in partnership with the U.S. Department of Agriculture Farm Service Agency and the University of Illinois led National Coalition for Producer Education.