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February 26, 2019

Dairy Margin Coverage Program Offers Best Risk Protection

 |  By: Jim Dickrell

The Dairy Margin Coverage Program under the new farm bill likely offers the best risk protection going into 2019, say University of Wisconsin dairy economists Bob Cropp and Mark Stephenson.


“Right now, we’re forecasting we’ll be below the $9.50 margin level through at least the first three quarters of 2019,” Stephenson says. “Farmers will pay off their premiums [to lock in $9.50/cwt coverage] well before the year is done.”


Cropp agrees, and notes that the dairy futures markets don’t offer much opportunity to lock is a similar margin. “The same thing is true with the revenue insurance program. The futures market is not that strong to do much for you,” he says.


Both economists note that milk production is slowing, with milk production up just a half of a percent in the last quarter of 2018, and up just 0.9% for all of 2018. “Normally, we could handle a 1% increase in production,” says Cropp, because domestic consumption through population growth would typically absorb that limited increase.


But he says dairy exports could be down in 2019, due to trade wars, and huge stocks of cheese are weighing heavily on the Class III market. The good news is that European Union intervention stocks of milk powder are nearly depleted, and world prices for skim milk and whole milk powders have been increasing over the past few months.


Cropp and Stephenson expect the United States Department of Agriculture to release rules for the new Dairy Margin Coverage program in a few weeks, and sign-up to begin shortly after. Payments will be retroactive to January 1.


Note: The December 2018 Margin Protection Program (MPP) payment was recently announced at 15¢/cwt at the $8 margin level. That’s based on a U.S. all-milk price of $16.40 and a feed cost of $8.55. In 2018, farmers who signed up for the MPP program at the $8 coverage level received payments in 8 of the 12 months.


You can hear all of Cropp and Stephenson’s comments here.