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December 20, 2018

Changes to Farm Bill Dairy Program Could Significantly Increase Benefits

 |  By: Jim Dickrell

Had provisions of the new Farm Bill dairy program been in effect this year, payments to farmers enrolled in the Margin Protection Program (MPP) would have nearly quadrupled, says Jim Mulhern, president and CEO of the National Milk Producers Federation (NMPF).

 

Mulhern made the assertion in a webinar NMPF hosted this morning. USDA announced this week that the agency has paid out $253 million in MPP indemnities in 2018, or about 44¢/cwt for enrolled coverage. NMPF economists estimate that those payments would have jumped to $1.70/cwt under the rules in the new farm bill.

 

“[The farm bill] will be a new, improved, effective program for the future,” says Mulhern.

 

“We got everything we were asking for, and maybe a little bit more,” adds Randy Mooney, NMPF chairman and a dairy farmer from Rogersville, Mo.

 

Among the new provisions:

 

• The name of the dairy program has been changed to “Dairy Margin Coverage” (DMC).

Tier I coverage jumps to 5 million pounds of production.

Coverage levels range from 5 to 95% of production history, up from 25% to 90%. (This means farms of up to 4,000 cows can get Tier I coverage on 5% of their production history.)

Top margin coverage is $9.50, up from $8, for Tier I coverage. For Tier II coverage, the maximum margin remans at $8.  

For Tier II, if farmers select $8 margin coverage or less for their Tier I coverage, they must select that same coverage level for their Tier II production. If they select $8.50 or higher coverage for their Tier I production, they may select any level of coverage for Tier II production. 

Tier I premiums have been substantially reduced.

Farms can enroll in both the DMC and Livestock Gross Margin-Dairy (LGM-Dairy) insurance program and cover the same milk, they can enroll in both DMC and Dairy Revenue Protection (DRP) insurance and cover the same milk, or they can enroll in both LGM-Dairy and DRP, but not on the same milk.

 

 

Some fear the new program could be too good, resulting in excess milk production. However, analysis by Carl Zulauf and Chris Wolf, ag economists with Ohio State and Michigan State Universities, respectively, shows the new DMC program in the 2018 farm bill will not result in any farm size turning a loss into a profit.

 

Their analysis shows farms with fewer than 500 cows had losses reduced from 2014 through 2017. Herd sizes above 500 cows, which were already profitable, had profits increased. “When measured by percent change or loss, mid-size dairies (200 to 499 cows) appear to benefit most,” they say. Their analysis also suggests “that the 2018 dairy policy changes do not appear to alter the economics of size forces at work pressing dairy farms to get larger or differentiate out of commodity milk production.”

 

When signed by President Trump, the new farm bill will become effective January 1, 2019. However, USDA has not announced when sign-up for the program will begin, though the sign-up deadline is expected to occur this spring. The program will be retroactive to January 1.

 

In the meantime, NMPF officials urge dairy farmers to start studying the new provisions. They will have to make three key decisions:

 

  1. Whether to participate in the program.
  2. If they do, whether to sign-up for all five years or elect for annual sign-up. Note: If they opt to sign up for all five years, their premiums will be reduced by 25%.
  3. If they participated in the MPP program in 2014, 2015, 2016 or 2017, they have an option of getting a partial refund on the difference of the total premiums paid less the indemnity benefits  received. They have two options: They can take 75% of that refund as a credit toward future DMC premiums, or receive 50% of the refund in cash now.

 

 

 

 

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