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April 9, 2018

Dairy MPP Payments Possible Through August

 |  By: Jim Dickrell

Based on current futures prices for milk and feed, it’s possible dairy Margin Protection Program (MPP) payments will be made through August. Farmers would have to sign-up for $8 coverage since the current milk-feed margin projection is $7.85/cwt in August and much less February through July.

The lowest margin being projected is $6.37/cwt in March.

 

That’s according to analysis presented by Andy Novakovic, a Cornell University dairy economist and Mark Stephenson, a University of Wisconsin dairy economist, in a webinar hosted by Farm Credit East today.

 

For Tier 1 producers, those with a production history of 5 million pounds or less, there’s almost a 100% probability they would have a net benefit (indemnity less premium) at coverage levels at $8 and $7.50/cwt in 2018, an 85% probability of a net benefit at $7 and a 35% probability of a net benefit at $6.50.

 

These probabilities and a decision tool to determine which levels of sign-up are best based on your herd size are available at https://DairyMarkets.org/MPP/Tool/

 

USDA had announced the new MPP programs rules for 2018 following revisions made in the Bipartisan Budget Act of 2018. Sign-up for the 2018 MPP program begins today at your local FSA office and runs through June 1.

 

Both Novakovic and Stephenson say there is no rush to sign-up, unless you’re in desperate need of cash flow. The longer you wait, the more information you’ll have. And because sign-up is retroactive to January 1, that information could mean dollars in your check book. “By June 1, we’ll have all the margins for January through April,” notes Stephenson. So you’ll know exactly what the best coverage level is for those months, plus futures markets will give you some clues as to what markets are doing moving forward.

 

As soon as USDA’s Farm Service Agency gives him the OK, Stephenson will activate his revised MPP decision tool. That will give probabilities of payments plus give larger, Tier 2 farms (those with more than 5 million pounds of production history) a tool to look at both coverage levels and coverage percentages to achieve the most profitable result.

 

In their webinar today, Novakovic and Stephenson answered participants’ questions. Specifically:

 

If you have Livestock Gross Margin-Dairy insurance that begins in July, do you qualify for MPP coverage January through June?  The answer is no. “You can’t start MPP coverage [in 2018] until the LGM coverage is done,” says Stephenson.

 

Is the new ‘catastrophic’ level now $5?  Even though premiums for $4, $4.50 and $5 is now zero for Tier 1 producers, the ‘catastrophic’ level remains at $4, says Stephenson. That means if you sign-up for MPP, pay only the $100 administrative fee but do not specific a coverage level at $4.50 or $5, you will only receive $4 coverage.

 

Are MPP premiums due at sign-up? “Premiums must be paid by Sept. 30,” says Stephenson. If you sign-up for coverage and you are a Tier 1 producer, it’s likely you won’t have to write a premium check this year at all. That’s because FSA deducts premiums from indemnities and pays you a net benefit. It appears indemnities through the first half of the year will be large enough to more than cover even the highest premium, at 14.2¢/cwt for $8 coverage.

 

Are MPP payments still subject to a 10% discount to help pay for the budget deficit? “No, there is no budget sequestration in 2018,” says Novakovic. Sequestration was suspended in the Bipartisan Budget Act of 2018, which includes the revised MPP program. As a result, farmers will receive the full indemnity payment based on their selected coverage level.

 

If you sell out your herd in 2018, are you eligible for MPP coverage for the entire year based on your production history? “You must be an active producer to receive payments,” says Stephenson. Technically, if you keep one cow and market the milk from that cow you might be considered an active producer. But check with your local FSA office as how it will rule in your specific case.

 

View the entire webinar here. 

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