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April 19, 2018

Changes to Dairy Margin Protection Program a Good Start

 |  By: Dairy Talk

The House Agriculture Committee passed its revisions for the 2018 Farm Bill a few days ago. Changes to the Dairy Margin Protection Program (MPP), which will now be known as the Dairy Risk Management Program, are a good start. Whether these changes remain or are further amended awaits debate by the full chamber and whatever provisions the Senate comes up with.


The National Milk Producers Federation (NMPF) is happy with the bill so far. Others aren’t, though the opposition is coming for different reasons both in the process (from Democrats) and from other provisions.


The change that could have the biggest effect is increasing the milk/feed margin coverage to $9.  Raising coverage to $9 will likely result in more indemnity payments. Had it been in place in the 2014 farm bill, USDA would have paid out indemnities 21 times versus the 13 times margins fell below $8 since March 2014.


The $9 margin, in effect, rectifies the 10% discount Congress applied (with NMPF acquiescence) to the feed formula calculation in the original MPP. That was done to reduce the cost of the program, and indeed it did. But it also meant farmers weren’t receiving indemnities when they needed them most. That, in turn, soured farmers on the program—and it’s not clear whether they will return in large numbers once the new farm bill takes effect. (This year is different, since farmers can retroactively sign up and are virtually assured payments now through July.)


The House Ag Committee also fiddled with premiums for Tier 1 (production history for the first 5 million   pounds). The current premium for $8 coverage is 14.2¢/cwt. In the new farm bill, the premium for $8 coverage would drop to 9¢. Premiums for $8.50 coverage would be 12¢/cwt and premiums for $9 coverage would be 17¢/cwt.


The new farm bill would also eliminate the 25% minimum coverage level, and farmers could sign up 5% to 90% of their production history (in increments of 5%). That would allow larger farms, up to about 4,500 cows, to qualify for Tier 1 coverage on 5% of their production history. (Currently, that limit is about 900 cows.)


Another provision would permit a multi-producer operation to exclude registering owners who hold less than 5% interest in the operation. The indemnity payment received by the operation would also be reduced by the percentage of the excluded owners.


Once the new farm bill is passed, dairy farmers would have 90 days to sign-up and elect coverage. The kicker: “This election shall remain in effect for the participating dairy operation for the duration of the dairy risk management program.” Note: This provision is already receiving pushback from farmers on social media.


Finally, the Congressional Budget Office has scored the entire new farm bill, estimating a cost of $387 billion over its five-year life. Unlike fears in the 2014 bill, dairy provisions in the 2018 version don’t appear to be a budget buster. In fact, CBO estimates dairy outlays will decrease $41 million over the current baseline during the life of the five-year farm bill. Exactly how those savings will accrue isn’t exactly clear. In any event, $41 million plus or minus is chicken feed in Federal Budget parlance.


Be warned: When it comes to the 2018 farm bill, dairy farmers shouldn’t count any chickens before they’re hatched. Some question whether a farm bill can even be passed in the toxic, partisan climate that is Washington, D.C. and ahead of Congressional elections this fall.