A small number of U.S. dairy operations could receive Margin Protection Program for Dairy (MPP-Dairy)payments beginning this week, according to the USDA Farm Service Agency (FSA).
MPP-Dairy payments are triggered when the national average margin, the difference between the price of milk and the cost of feed, falls below a producer-selected margin trigger, ranging from $4 to $8/cwt., for a specified consecutive 2-month period. Final USDA prices for milk and feed components required to determine the national average margin for the January-February 2015 period were released on March 30.
January 2015 margin calculations:
- Corn: $3.81/bushel
- Soybean meal: $380.02/ton
- Alfalfa hay: $174/ton
- Final feed costs: $9.26/cwt.
- All-milk price: $17.60/cwt.
- Milk margin minus feed costs: $8.3356/cwt.
February 2015 margin calculations:
- Corn: $3.79/bushel
- Soybean meal: $370.38/ton
- Alfalfa hay: $172/ton
- Final feed costs: $9.14/cwt.
- All-milk price: $16.80/cwt.
- Milk margin minus feed costs: $7.655395/cwt.
Combined, the January-February MPP-Dairy pay period margin is $7.99554/cwt., resulting in an MPP payment rate of $0.004456/cwt. (just over four-tenths of 1¢/cwt.) for dairy operations selecting an $8/cwt. margin trigger coverage level for 2015.
According to data released by USDA on April 9, of nearly 24,748 dairy operations selecting MPP-Dairy coverage, just 261 selected the $8.00/cwt. margin coverage level for 2015, with a total maximum annual milk production history of just over 1 billion pounds. Production history was based on the highest annual production over a three-year period, 2011-2013.
Based on analysis by Marin Bozic, Assistant Professor, Department of Applied Economics with the University of Minnesota-Twin Cities 26% of expected 2015 milk production has MPP-Dairy coverage at $4.50/cwt. or higher, but only 10.3% has a coverage at $6.50/cwt. or higher.
In addition to margins, producers selected the percentage – between 25% and 90% – of their annual milk production history to be covered. Nationally, at the $8/cwt. coverage level, those dairy operators elected to cover about 58% of their annual milk production.
Under the MPP-Dairy program, the eligible milk production history for these producers (about 1 billion pounds X 58% = 583 million pounds) is divided equally over six 2-month pay periods, making 97.2 million pounds (972,000 hundredweights) eligible for the 0.45¢/cwt. payment for the January-February pay period. That adds up to about $43,300 in total payments.
Not only will MPP-Dairy payments be small, but they are also subject to federal budget sequestration, reduced by 7.3%, according to the FSA notice.
Qualifying producers paying the full margin insurance premium in-full will receive a payment based on the amount of covered production history elected by the dairy operation. If the premium has not been paid in-full, payments will apply to the outstanding premium balance remaining for buy-up coverage, thus reducing the premium needed to pay by June 1.
USDA issued payment processing instructions to state and county FSA offices on April 10. Those offices were to begin processing payments to eligible producers on April 13.
Of the 261 selecting the $8/cwt. margin coverage, about two-thirds (171) are in just five states: Wisconsin (69); Minnesota (35); New York (28); Pennsylvania (20); and Michigan (19).
Based on current projections, there’s a chance dairy producers covered at the $8/cwt. margin level may also see a small payment for the March-April payment period
However, while those electing the $8/cwt. margin level will be seeing small payments in 2015, the added protection appears costly. In addition to a $100 administration fee paid by all dairy operations participating in MPP-Dairy, buying any coverage above $4/cwt. included additional premium payments.
At the $8 level, insurance premiums were 47.5¢/cwt. on the first 4 million pounds of milk production per year; and $1.36/cwt. on any insured milk above 4 million pounds/year. Premiums were discounted 25% in 2014 and 2015 on covered annual farm production volumes up to 4 million pounds.
Source:udel.edu