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March 28, 2018

2018  Dairy MPP Sign-up Details to Be Announced Next Week

 |  By: Jim Dickrell

USDA has informed a New York Congressman that the  anxiously awaited sign-up details for the 2018 Dairy Margin Protection Program (MPP) will be released next week.

In a letter to Rep. John Faso (R.), USDA said farmers will be able to retroactively sign-up for MPP protection for January, February and March and for the rest of 2018. The agency also said indemnity checks would be sent out very quickly following sign-up.

Estimates by Dairy Farmers of America show the February milk-feed margin will be $6.88/cwt, triggering a $1/cwt indemnity for producers who sign up for $8 margin insurance. That’s based on an all-milk price of $15.30 in February, corn at $3.38/bu, alfalfa at $155/ton and soybean meal at $363/ton. Note: Under the new program, margins are calculated monthly rather than than based on a two-month average. 

Based on current futures prices, estimates of MPP margins from February, March, April and May show potential net indemnities (indemnities less premium costs) of 90¢/cwt, 75¢ indemnity in June, and a 35¢ indemnity in July, says Marin Bozic, a University of Minnesota dairy economist.

The 2018 MPP program also increase the Tier I production history cap to 5 million pounds, up a million pounds from the original MPP program. Congress also drastically reduced premiums for Tier I in the new program passed by Congress in February. Under the old program, the premium for $8 coverage was 47¢/cwt. Under the new program, the premium falls to just 14¢/cwt.

Farmers will again be able to protect from 25% to 90% of their production history. “If farmers have less than 5 million pounds of production history, they should protect everything,” says Bozic.  If you’re between 5 million and 23 million pounds of production history, choose a percentage that gets up to 5 million pounds of coverage, he recommends. For producers with more than about 23 million pounds of annual production history, the MPP program really doesn’t work because Tier II premiums weren’t reduced.

He also notes that the MPP program is authorized only through the end of the year. If no Farm Bill is enacted this year, the Dairy Support Programs is reinstated at 90% of parity. That could mean a support price in excess of $47/cwt because the February 2018 milk parity price is $52.70/cwt. This default mechanism is a poison pill forcing Congress to take some action to avoid that from happening.  

Bozic spoke at a seminar hosted by the American Dairy Coalition held during the Central Plains Dairy Expo in Sioux Falls Wednesday.