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While spring field activities are well underway, a key deadline is approaching quickly – June 1 to participate in the MPP-Dairy program. In February 2018 Congress approved modifications to the MPP program, which potentially changed the value of the program for small to midsize dairy producers.
Some of the key changes are:
- First tier of coverage was raised from four to five million pounds.
- The cost of premiums for buy-up coverage on the first tier was cut by as much as 70 percent from previous levels.
- The margin is calculated on a monthly basis, rather than a two-month average.
With these modifications, enrollment was re-opened and dairy producers have until June 1 to enroll for 2018. With the enrollment period open until June 1, and producers having the option to enroll for the whole year, what has occurred for the first three months of 2018 is already known.
- For January 2018, the margin was $8.12 per cwt, so no payment was made at any level.
- For February, the margin was $6.88 per cwt, leading to a payment of $1.12 per cwt if a farm selects the $8.00 coverage level.
- For March, the margin was $6.77 per cwt, leading to a payment of $1.23 per cwt at the $8.00 coverage level.
Depending on the farm's production history and how close to the five million pounds can be covered under the Tier 1 coverage, 100 percent of the premium costs, if not more, will be covered by the payments associated with February and March by selecting the $8.00 coverage level. With 100% of the premium covered, any future payments will be on the plus side with additional returns for those who participate in the program for 2018.
Using the Margin Protection Program Decision Tool, producers can calculate options for their farm. If you have a production base of 4,000,000 pounds and elect 90 percent coverage at the $8.00 level, the administrative fees and premiums are projected at $5,212. The expected payment for the year is $15,708, for a potential return of $10,496. However, with the first quarter already in the books, payments for February and March would equal about $6,500, more than covering this premium. Therefore, there has already been a return for participating in the risk management program for 2018, and any further payments will add to this return. At this point, other than paying the $100 administrative fee, there wouldn’t even be a premium paid as those aren’t due until September 1, and they can be deducted from the indemnity payments associated with February and March.
The potential value of participating in MMP-Dairy does begin to decrease if, based on your production base, the pounds of milk at the minimum coverage percentage of 25 percent is over five million. Using the decision tool listed above, or having your FSA office calculate, can help determine what the value of participating may be if your minimum pounds of production is over five million.
If you are already participating in LGM-DAIRY, you are not eligible to participate in MPP for those same months. If you do enroll in MPP, you will no longer be able to participate in LGM-Dairy until January 2019.
If you haven’t considered participating in the MPP program for 2018, there is still time, but it is limited. At this point, participation appears to provide a risk free opportunity to potentially offset a small part of the lower milk prices seen this year for small to midsize dairies.
If you have further questions, please visit with your local FSA office or visit the following websites.
Resources:
https://dairymarkets.org/MPP/
http://www.futurefordairy.com
https://www.fsa.usda.gov/programs-and-services/Dairy-MPP/index
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