By Chris Clayton
DTN Ag Policy Editor
OMAHA (DTN) -- Dairy farmers can sign up for the new federal Dairy Margin Protection Program starting Tuesday, Sept. 1.
The Market Protection Program is an insurance option for dairy farmers that is being run through the Farm Service Agency. The Margin Protection Program will pay indemnities to farmers when the difference between the price of milk and feed costs falls below a coverage level selected by the farmer.
Enrollment begins Tuesday and will run until Nov. 28 for the 2014 and 2015 calendar years.
Under the program, USDA determines national average feed costs, factoring in the price of corn, soybean meal and alfalfa. Those feed costs are used to calculate actual dairy production margins; feed costs for consecutive two-month periods are subtracted from the all-milk prices for those two months. Farmers collect a payment when the actual production margin for two consecutive months is less than the coverage level selected by the producer.
Other than this year, the Margin Protection Program will have an annual sign-up. If a farmer has more than one dairy operation, each one will have to enroll separately.
Dairy farmers who sign up for MPP will choose the level of milk production to cover, ranging from 25% up to 90%. Then they choose the level of the milk price-to feed margin they wish to protect, which could range from $4 per cwt up to $8 per cwt, in 50-cent increments. With the way the milk production levels and feed margins are paired together, dairy farmers will effectively have 126 different combinations to choose from for coverage.
Agriculture Secretary Tom Vilsack hosted a conference call Thursday with Sen. Patrick Leahy and Rep. Peter Welch, both Vermont Democrats, to tout the program. The National Milk Producers Federation also praised USDA for the program's rollout.
Premiums are free at the lowest coverage level of $4 per cwt, but rise from there. Sign-up will be annual and the program is voluntary, so producers can wait until later years to enroll in the program. However, once a farmer enrolls a farm in MPP, the farm must remain in the program through 2018. Farmers also will have to pay a $100 administrative fee for being in the program. "They can sign up for extended coverage from year-to-year on whether or not they want to participate in the program," Vilsack said.
Jim Mulhern, president and CEO of the National Milk Producers Federation, said a lot of "blood, sweat and tears" went into creating the margin program and lobbying to get it ready to start. Mulhern said there would be a learning curve for farmers to understand how the program works. Mulhern said he wasn't sure what percentage of producers would enroll this first year.
"We think it will be very high, but I wouldn't hazard to guess what that would be," he said.
The premiums are being discounted in 2014 and 2015 for producers for up to 4 million pounds of production enrolled in the program. Premiums will be higher for those operations covering milk production above that 4-million-pound level. Mulhern said he doesn't think the 4-million-pound level would cause producers to develop new business models to keep lower premiums.
USDA has rolled out a web tool created by dairy specialists at seven land-grant universities to help farmers enter production and feed cost data to calculate the range of coverage options, margin protections and premium costs. Most computers and tablets will be able to access the tool, which is designed not to collect or store farmer data. The tool does include a spreadsheet that farmers can download to keep, as well as an option to print forms to take directly to the Farm Service Agency office for sign-up.
USDA also announced the Dairy Product Donation Program. The program allows USDA to buy dairy products and give them away to non-profit groups that provide food to low-income families. USDA can only buy the products when dairy margins are low.
Leahy noted it was a battle getting a new dairy program into the 2014 farm bill. He also noted that while dairy farmers are seeing higher prices now, the industry tends to revolve around boom-and-bust cycles that can swing quickly.
"I encourage every dairy farmer in the country to visit the website and see how the Margin Protection Program works," Leahy said.
The calculator tool and other details on the Margin Protection Program can be found at www.fsa.usda.gov/mpptool
Chris Clayton can be reached at Chris.Clayton@dtn.com
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