Dairy producers who have not yet looked into the new Margin Protection Program (MPP) should get hopping. MPP-Dairy is designed to get producers off the milk margin roller coaster and have control over their income. It is the latest in a suite of risk management tools available to producers.

By mid-January, Secretary of Agriculture Tom Vilsack said that enrollment in the program had exceeded half the nation’s dairy farms – well beyond his expectations.

The top participating northeastern state is Connecticut, with 70 percent enrollment of its 130 registered dairies. The 63 percent third-place sign-up rate by Vermont’s 930 dairies was only slightly surpassed by the 64 percent rate of New Jersey’s 70 farms.

Pennsylvania seriously lags behind the national average. Only 30 percent of the commonwealth’s 7,200 farms have signed up. New York, with over 5,000 dairies, has a subpar 48 percent participation.

The MPP was created in the 2014 farm bill. It replaced the Milk Income Loss Contract program, giving dairy producers more flexibility to select the coverage levels best suited to their operation.

Simplicity is vital to the measure. MPP-Dairy was designed to be simple for producers to use. The measure should get approval from all dairy producers, regardless of the size of their operation, management style or business model. One significant feature is that farms of all sizes can purchase margin protection near their historical maximum levels of milk production. Another is that a farm can opt into the program one year and opt out the next without prejudicing its ability to get back into the program in future years.

There is a $100 fee charged each time a farm registers, and it applies if a farm selects protection at the minimum margin level ($4 per hundredweight of milk). Higher levels of protection are available, for which producers must pay both the administrative fee and a premium. Producers may purchase buy-up coverage that provides payments when margins are between $4 and $8 per hundredweight. To participate in buy-up coverage, a producer must pay a premium that varies with the level of protection the producer elects.

One of MPP-Dairy’s key provisions is that it gives dairy producers a way to self-select coverage levels each year to protect against declines in national, rather than farm-level, income-over-feed-cost margins. It actually provides proportionally greater support to smaller producers through lower premiums, and establishes safeguards against rising program costs by both restricting annual increases in covered production and raising coverage costs for higher levels of production.

Smaller producers get a price break. Premiums are lower for coverage less than 4 million pounds of milk production (equivalent to a herd of about 185 cows). These lower premiums are also reduced by 25 percent for 2015.

Producers will know exactly what it costs before they sign up. The premium rates for MPP-Dairy were fixed at a predetermined level written into the Farm Bill.

The best place to determine whether MPP-Dairy is right for your operation is on the USDA website: www.fsa.usda.gov/FSA/pages/content/farmBill/fb_MPPDTool.jsp. Another good online resource is the Farm Bureau’s video on MPP-Dairy, which can be found at www.fb.org/index.php?action=issues.farmbill.

So far the program has gotten kudos. “I applaud USDA’s aggressive education campaign that demonstrated the value of this tool to producers, ultimately resulting in robust enrollment numbers,” said National Farmers Union President Roger Johnson.

Payments begin when the margin falls below $4 per hundredweight for a two-month period. Benefits apply to a participating operation’s production history, adjusted annually to reflect national average milk production increases.

The figures used to determine MPP-Dairy payments come from the USDA National Agricultural Statistics Service’s (NASS) all milk price per hundredweight, NASS’s announced corn price per bushel, alfalfa hay price per ton, and the USDA Agricultural Marketing Service’s figures for high protein soybean meal.

Among other provisions of the current farm bill, the Dairy Product Donation Program (DPDP) requires the Secretary of Agriculture to purchase dairy products at market prices for donation to nutrition programs whenever the margin between milk prices and feed prices falls below the minimum margin specified under the MPP. The Dairy Product Price Support Program (DPPSP) and Dairy Export Incentive Program (DEIP) were repealed.

The USDA emphasized its belief that an insurance-based program offers producers an opportunity to choose coverage levels based on their willingness to pay for risk protection. It avoids the sting of critics who still repeat the old canard about farmers being paid not to farm.

Producers buy into MPP-Dairy’s income protection just as they would buy life or auto insurance. The new margin insurance program directly links protection to key economic risks producers face. This program does not change the Dairy Indemnity Program, which paid producers who were required to dump milk because of contamination with pesticides or for other reasons that made their milk unsalable on the market.

The rules for MPP-Dairy were published in the Federal Register on August 29, 2014.

Cover Photo by ErikaMitchell/iStockphotography.com