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August 4, 2017

Regaining Confidence in the Dairy MPP Will Take Years

 |  By: Dairy Talk

By Jim Dickrell

Like Sisyphus’ eternal struggle to roll the boulder up the mountain, regaining dairy farmer trust in the Dairy Margin Protection Program (MPP) will be an uphill task.

Changes to the Dairy MPP might eventually make it more palatable to risk-averse dairy farmers. But that same aversion to risk, and Dairy MPP’s failure to deliver the past two years, make it an uphill push. And unfortunately, it will take several years of down markets to prove to farmers changes actually work.

The Senate Appropriations committee has already approved a few tweaks, and if they survive, could be in place for 2018:

• Change the margin calculation to a monthly rather than bi-monthly, thus improving chances of indemnities when milk-feed margins drop below $8.

• Increase the threshold for Tier I farms from 4 million lb of annual milk production to 5 million lb. This roughly equates going from 185 cow to 225 cows. Tier I premiums are lower than premiums charged for larger herds.

• Tier I premiums would also be reduced.

The American Farm Bureau Federation (AFBF) has also suggested a number of revisions for the next farm bill, starting in 2019:

• Increase the feed ration formula 10%, as in the original 2014 farm bill. The formula was cut early in the 2014 farm bill debate to reduce the cost of the program, but the reduction is the main reason the MPP has not performed as originally designed.

• Reduce Tier I premiums 25%.

• Increase Tier II premiums 25%.

• Lower the maximum margin coverage level from $8 to $7.

• Increase the catastrophic margin level from $4 to $4.50.

• Increase the administrative fee from $100 to $300.

The National Milk Producers Federation has not laid out its entire package of proposed changes, but it too wants Congress to go back to the original feed formula. Others, like Con. Collin Peterson (D., MN), the ranking member on the House Agriculture Committee, wants to target the MPP to smaller, Tier I producers.

A revised Congressional Budget Office baseline, upping the allowed spending from about $50 million to $70 million per year, will help. But it still likely won’t be enough to allow a change in the feed formula. And even if the feed formula is changed back to its original design, skeptical farmers aren’t likely to take it at face value.

They’ll have to be shown that the changes and the tweaks deliver as promised. And given the volatility of commodity markets, it could be several years for all of this to play out. Right now, there’s hope that an improving economy will continue to strengthen demand both here and overseas. That should bode well for milk prices, and given modest feed prices, milk-feed margins could and will likely remain above $8 even if the feed formula is changed.

After several years of disillusionment with MPP, it will take several more for dairy farmers to regain confidence in the program. That is, if they ever do.