Posted by: Suzanne Lois, Agricultural Risk Advisor
When measuring the profitability of any dairy, income over feed cost (IOFC) can be a quick indicator of the margin left to pay all other expenses, and determine a profit or loss for that month’s milk production. The Dairy portion of the Farm Bill of 2014 took major steps to help dairy producers protect their margins with a program called Margin Protection (MPP). Very similar to the crop insurance program, MPP allows active dairy producers to protect a specific margin level on a percentage of their milk production history for a premium charge. The program sign up deadline for the remainder of the 2014 production year, (September 2014-December 2014) and the 2015 production year is November 28, 2014 at your local FSA office.
Don’t rush to sign up if you have a risk management plan in place, such as forward contracting of milk and feed, and use of marketing tools such as puts and calls. If you are comfortable with how you are managing this type of risk on your dairy, don’t try to reinvent the wheel. I suggest you work with your commodity marketing representative and your lending institution to determine if this program will be an addition to your risk management plan or just another expense that will cut into your bottom line. Knowing your dairy operations income over feed cost (IOFC) will be the key in determining your operations plan of action. Your best source for this information is your dairy operation’s nutritionist.
Below are the eligibility requirements, the basics of how it works, and where you can find a tool to help you determine, in advance of going to FSA office, the coverage levels that best fit your dairy operation.
MPP—BASICS
Eligibility requirements
Limitations
Trigger formula factors used to determine payment
Dairy operations will have to determine what % of their covered milk production history they would like to cover along with a margin coverage amount. A dairy operation’s 3 year production history will determine the pounds/month that are eligible to be covered. Coverage periods run in 2 month increments, with 6 coverage periods per year. The percentage of milk production coverage eligible can range from 25%-90% in 5% increments. The margin coverage level is from $4.00/cwt - $8.00/cwt. The minimum coverage level of $4.00/cwt, which is considered CAT coverage, has a flat premium charge of $100.00 which is due at the time of enrollment. All other premiums are determined by the margin chosen and the % of your milk production history you chose to cover. For the first 4 million pounds of covered production history everyone receives the Tier 1 discount on premiums. In most cases, smaller operations can purchase at the $6.50/cwt margin level and be charged less than $.10/cwt, while larger operations to achieve the same $.10 or less in premium will have to choose the $5.50/cwt level. Premiums are paid all up front or a two part installment.
Once you enroll in MPP there is no opt out and your operation will be committed until 2018. However, you will be able to change your coverage levels each year during the time period of July-September for the next calendar year. If you choose not to enroll for the remainder of the 2014 year and 2015, you may enroll in July-September of 2015 for the 2016 production year.
The 2014 Farm Bill has all dairy producers considering how much skin they want to put in the game to protect their bottom line.