The Dairy Margin Protection program (MPP) and the Livestock Gross Margin program (LGM) have received updates for 2018.
During the Central Plains Dairy Expo held in Sioux Falls in late March, Dr. Marin Bozic, a dairy economics professor at the University of Minnesota, updated producers on the changes to the two programs and how he says MPP has failed producers since its inception.
MPP, since its authorization in the 2014 farm bill, is designed to provide catastrophic coverage to dairy producers. The catastrophic point where coverage would kick in was when the national dairy production margin was below $4 per hundredweight (cwt). In addition to basic coverage that had no premiums, producers can opt to buy-in to higher coverage levels up to $8 cwt. This is where the MPP program failed its adopters, Bozic said.
According to research done by Dr. John Newton of the American Farm Bureau Federation and compiled by Bozic, the old MPP program gave out $12 million in payments to producers even though the program had received $100 million in premiums and administrative fees. This was because of the high premium of 49 cents for the $8 coverage.
Instead of 49 cents for Tier 1 coverage, the premium in the MPP rework has been dropped to 14 cents, Bozic said.
“The probability that you will get back at least what you put in on the tier 1 premiums is almost 100 percent,” Bozic said. “It is almost certainty that if you are able to buy into this program today and insure however many pounds to stay in Tier 1 level, you will at least get back what you paid in.”
Because of the nature of the coverage, Bozic said anything less than full Tier 1 coverage would not be cost effective for the average producer. He advised that producers put as close to exactly 5 million pounds into the MPP program at the $8 cwt coverage.
“If your production history is about 5 million pounds, just protect everything you can,” he said. “If you are anywhere in between, choose the coverage where the protection is about 5 million pounds. That is the best way you can improve your checkbook using this program.”
Because both LGM and MPP are margin protection programs, producers cannot use both of them at the same time. For those producers who chose not to get coverage at the start of the year due to concerns over the MPP program, Bozic said the U.S. Department of Agriculture would be enacting MPP retroactively so that producers would get coverage from Jan. 1, onwards should they chose to adopt MPP for the rest of the year.
“The purpose of MPP isn’t to encourage anyone who was thinking of pursuing different careers to come back to farms,” he said. “If anything, it is to ensure a gentle consolidation. A humane exit for those who are interested in using their assets in some other industry.”
The last major change to MPP is that producers can opt out of the program after the year is over. There are no longer required multi-year plans. Although, Bozic did advise that anyone who has an operation of over 25 million pounds to skip MPP and use LGM.
“I really wish they changed the name because that would reset the way we look at MPP,” Bozic said.
LGM, historically, had the advantage of month-by-month usage, but many producers couldn’t rely on it due to subsidy caps, Bozic said. Now, with the changes made for 2018, subsidy caps have disappeared and there is virtually unlimited money to be provided to producers for protection.
“If your farm is too big for MPP, you can now rely on LGM as a consistently available program,” Bozic said. “You can definitely plan your risk management program around it.”
There is a new protection program coming soon, Bozic said, but he was barred from talking about it at the event, he said. The only thing he said about the new program is that he expects it to be out no later than the fall of this year. The program will be called the Dairy Revenue Protection program.
To end the program, Bozic touched on the importance of exports and international trade. He advised producers to advocate for increased exports, as it is typically the standard way to stabilize the dairy industry.
“Our cows are getting better faster than the United States population growth,” he said. “The only way to keep production stable is to increase exports.”
The prospect of an uncertain future may worry some, Bozic said, but he encouraged producers to remember to keep their minds open and ready for new opportunities.
“The only way forward is to force yourself to admit that your maps sometime have to be empty,” he said. “When you wake up and use all of your ability to prepare yourself for the unknown, I do believe there is ample opportunity in the dairy sector.”