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Decision Time for Using the Dairy Safety Net

May 1, 2018

The economic situation facing America’s dairy farmer community has been a frequently and widely reported news story this spring – and the news hasn’t been good. As 2018 unfolds, dairy farmers are again dealing with depressed milk prices that, for many farms, don’t cover all the bills.

Thus, the arrival of an improved dairy safety net with more and better risk management tools – in particular, important enhancements to the dairy Margin Protection Program (MPP) that make it more affordable and effective – is coming at a crucial time.

These changes are the result of a year-long effort by NMPF to strengthen the safety net by providing more effective coverage for farms of all sizes through MPP and other meaningful risk management options, including the Livestock Gross Margin (LGM) program and additional tools under development. After months of negotiation, Congress adopted many of NMPF’s desired changes in the bipartisan budget act adopted in early February.

For MPP, farmers have the entire month of May to evaluate how these changes could impact their operations. The good news is that by June 1 (the deadline for enrolling in the program for calendar year 2018), we’ll know exactly what the official margins are for the first four months of the year, and farmers will know with certainty the level of support at varying levels of margin coverage. They’ll also have a good indication of prospects for additional program support during the summer months.

There are several program improvements that producers should consider as they examine their sign-up choices for the program for this year. The changes from last year include:

  • Adjusting the first tier of covered production to include each farm’s first 5 million pounds of annual milk production history, up from 4 million pounds;
  • Raising the catastrophic coverage level from $4/cwt. to $5/cwt. for the first tier (5 million pounds) of milk production history for all dairy farmers;
  • Reducing the premium rates for the first 5 million pounds to better enable dairy farmers to afford the higher levels of coverage that will provide more meaningful protection against low margins;
  • Utilizing monthly, rather than bimonthly, margin calculations to determine payments to be more responsive to volatile market conditions;
  • Waiving the annual $100 administrative fees for “underserved” farmers, or those who meet certain criteria defined by USDA, including limited resource, beginning stage, veteran or socially disadvantaged farmers; and
  • Removing the $20 million annual cap on all livestock insurance, including the Livestock Gross Margin for dairy program. This will allow USDA to provide additional risk management tools for dairy producers, such as the Farm Bureau’s new Revenue Protection program.

While the Agriculture Department currently allows farmers the option of using either the MPP or LGM programs, but not both simultaneously, the elimination of the budget cap on LGM policy underwriting may make that program more attractive to larger-scale operations, as the support provided by MPP tapers offs for bigger herds. What’s more, the new risk management options that USDA is expected to introduce should create a menu of options that will likely be of particular interest to larger producers.

The changes NMPF worked with Congress to make in the MPP and the LGM programs are an important step, but not the end of the journey.  We’re currently working with allies in the U.S. House of Representatives and Senate to further bolster the dairy safety net in the next Farm Bill.  The additional improvements under consideration should expand the range of margin coverage available to farms, and eliminate the minimum 25 percent of production history coverage threshold that currently works against participation in MPP by larger farms.

The Farm Bill is a work in progress, and it remains to be seen whether Congress can pass a bill this year. But lawmakers in both chambers, and in both parties, understand how important it is to make additional improvements to the dairy safety net, and build on the successes we’ve already achieved this year.

*As a footnote, remember that all farms wishing to use the MPP this year must enroll before Friday, June 1, even if you previously made a coverage decision last fall. To help farmers understand their options, USDA is offering more insight into how to use the MPP in this online brochure.  In addition, NMPF has updated its Future for Dairy website with a five-page fact sheet and other explanatory content.