MPP Forecast: January 2018
January 5, 2018
The monthly margin under the dairy Margin Protection Program (MPP) rose by $0.39/cwt from October to $10.39/cwt in November. The increase was generated by both a higher all-milk price, which rose by $0.20/cwt, as well as a $0.19/cwt drop in the MPP feed cost formula. Twelve cents of the feed cost drop were due to a decline in the corn price, $0.05 stemmed from a lower alfalfa hay price, and $0.01 resulted from a lower soybean meal price. The November monthly MPP margin was the highest since February 2017. The MPP monthly margin was last below $8.00/cwt in July 2016. The November monthly MPP feed cost was $7.71/cwt, the lowest since December 2016. The November all-milk price, $18.10/cwt., was the highest since February 2017.
The CME dairy and grain futures currently suggest that the monthly MPP margin is on the verge of a steep drop, which would take it below $8.00/cwt for the first three or four bimonthly periods of 2018. The MPP feed cost is projected to rise slowly from its current level throughout 2018, but not likely gain more than one dollar above its November 2017 level. The all-milk price, on the other hand, is currently forecast to drop by almost $3 through this winter, driven by expected falling cheese and whey prices. These changes would bring the MPP margin down to $7.00 for the March-April period. The USDA MPP Decision Tool margin forecast for next year has also moved lower, but currently shows a stronger recovery in the MPP margin in the second half of 2018. As shown in the chart above, the USDA tool projects that the MPP margin will fall below $8.00/cwt. during the first half of 2018, based on the latest available update. Just a month earlier, the tool showed the margin remaining above that level throughout 2018.