Screen shot of Bob Cropp and Mark Stephenson.
May 20, 2016

MPP Payments Could Be Triggered Through October

 |  By: Jim Dickrell

Based on current dairy futures prices, Dairy Margin Protection Program (MPP) payments could be triggered through October, say University of Wisconsin (UW) dairy economists.

In their monthly podcast following USDA’s dairy production report, Bob Cropp and Mark Stephenson point out that the dairy milk-feed margin as calculated under the MPP program could dip below $6 this month. Based on the futures market, it doesn’t rebound back to $8 until November.

“We’re going to see payments,” says Cropp. But he also points out that most dairy farmers who signed up for MPP this year did so at the catastrophic, $4 margin level. So most participants won’t see a check even if the margin dips below $6.

Brian Gould, also a UW economist, says margin protection at these lower levels is still possible with the Livestock Gross Margin-Dairy program.  “Even with the low milk prices impacting the industry today, there are options available where reasonable levels of protection can be obtained,” he says. But if farmers signed up for the Dairy-MPP, they are not eligible for LGM-Dairy.

These low margins are being driven by strong milk production here in the U.S. and Europe, and weak export demand. In April, U.S. milk production jumped 1.2%; in March, it was up 1.8%. And these increases come on top of strong growth last year.

Despite strong consumer demand here domestically, dairy commodity inventories are building, and in some cases in cheese, are the largest in history. The only good news: “Inventory-to-use is not in places we haven’t been before,” says Stephenson.

The only things that will cure these low prices might be low prices, rising feed prices and hot weather this summer to curb both milk and crop production. In its May report, USDA reduced its Class III price projection range 20¢/cwt for the year, and it has the All-Milk Price average below $15. For many dairy farmers, this is $2 or more below their cost of production.

View the entire Cropp/Stephenson podcast here.