Margin Protection Program for Dairy Operations
Kristen Schulte, ISU Extension and Outreach Farm
Business Management Field Specialist
([email protected] or 563-547-3001)
Producers can enroll in Margin Protection Program
(MPP) from September 2 to November 28, 2014 for
2014 and 2015. MPP offers margin protection for
operations, and the calculated margin trigger was
designed to reflect the well-being of dairies across the
U.S. This program is designed to assist operations in
times of lower margins, and has an insurance
structure with levels of coverage and related
premiums.
Eligibility
All owners of an operation must agree to participate
in the program and on the level of participation for
the operation to participate. To be eligible for MPP
producers must
1. Commercially market milk in the United States
or territories. Dairy cow related milk
marketings are eligible for the program; goat
and other related milk marketings are not
eligible. If processing on-farm for fluid milk or
other dairy products contact the local FSA
office for eligibility and establishing
production history.
2. Owners must be U.S. citizens; if an operation
has non-U.S. citizen ownership the production
history will be reduced by the individual/s
ownership percentage.
3. Owners must be actively engaged in the
operation commensurate with their
proportionate stake in the operation.
4. Operations will need to comply with the
Highly Erodible Land Conservation and
Wetland Conservation compliance measures.
5. Operations cannot participate in both
Livestock Gross Margin (LGM-Dairy) and MPP
at the same time. Participation in LGM-Dairy is
a bi-monthly look in years 2014 and 2015, and
an annual look for years 2016-2018.
Eligibility requirements three and four are similar to
those of MILC. The LGM participation rule is new for
this program. Eligibility will be verified when the
operation fills out CCC-781 to establish production
history.
One Time Decision - Production History
The Actual Dairy Production History (ADPH or
production history (PH)) for a dairy operation will be
the highest of calendar year marketings for 2011,
2012, and 2013. These years stand as years to
determine PH regardless of when enrolling in MPP.
Operations marketing milk prior to February 8, 2013
will utilize the highest of the three annual milk
marketings to determine production history.
Producers with their first milk marketing on or after
February 8, 2013 are qualified as a new operation. As
a new operation producers will establish their
production history by extrapolation or Rolling Herd
Average (RHA) multiplier. The extrapolation will utilize
the milk marketings in the operation’s first year and
USDA established monthly seasonal milk production
multipliers to calculate an adjusted annual milk
marketing and PH. The RHA multiplier will use an
USDA established RHA value times the number of
cows to establish the PH. The RHA multiplier for 2015
is 21,822 pounds for 2014 and 2015.
Starting in 2015, if enrolled in MPP operations will
receive an annual bump in PH. This “bump” will
correlate to the increase in national milk production.
PH can only increase by the bump, and the bump will
be released in May by the Secretary. For 2015, the
bump is 0.87%. If an operation does not enroll until a
later year (2016-2018), they will forgo any historical
bumps in production history.
Establishing PH and enrolling in MPP occurs at the
same time with form CCC-781. Both are a one-time
decision for the life of the Farm Bill.
Annual Decisions – Coverage Percent and Coverage
Level
Establishing the coverage percentage and coverage
level is an annual decision during the related
registration period; these will be established by filling
out CCC-782. For coverage percent, operations can
cover 25 to 90 percent of production history in five
percent increments. The coverage level is based on a
margin measure; the coverage levels range from $4 to
$8 in $0.50 increments. Catastrophic coverage is
identified as 90% coverage at $4 level; this will be the
default if enrolled in MPP and no coverage level is
selected.
Operations can cover at $4 coverage level with no
premiums. Buy-up coverage is from $4.50 to $8; for all
levels of coverage at and above $4.50 there is a
premium per hundredweight. Premiums increase
based on a higher level of buy-up coverage.
Additionally, there are two tiers of premiums; Tier 1 is
for covered production up to 4 million pounds, and
Tier 2 for over 4 million pounds which also has higher
premiums. For 2014 and 2015 coverage, Tier 1
premiums for $4.50 to $7.50 coverage levels are
reduced by 25 percent.
Table 1 includes the coverage levels and related
premiums, and Table 2 is an example of the related
premiums and fees due for Cy Dairy (example dairy).
The example outlines a dairy with a PH of 6 million
pounds at coverage % of 50 and 90. The covered
production is calculated at 3 million and 5.4 million
pounds of milk, respectively. They operation selects
$6 coverage level based on operations risk and margin
calculations. The related premiums per
hundredweight for 2016 are displayed for coverage at
$6. Once enrolled, the operation would owe $100
annual administration fee. In 2016, for the covered
production at $6 margin level they would owe $1,650
at 50% coverage and $4,730 at 90% coverage.
Table 1. MPP Coverage Level Premiums
Table 2. Cy Dairy Premiums and Fee Example
are due by February 1 of the coverage year with the
balance due by June 1. If a producer does not pay the
premium before an indemnity payment is paid, the
premium balance will be taken out of the indemnity
payment.
Payment Trigger - Margin
Actual Dairy Production Margin (margin) is the trigger
for an MPP indemnity payment. The margin will be
calculated monthly, but the trigger will be an average
of two months. When the bi-monthly margin falls
below the coverage level selected a payment is
triggered. Six bi-monthly triggers are calculated each
year for Jan/Feb, Mar/Apr, May/Jun, Jul/Aug,
Sept/Oct, and Nov/Dec. The margin is calculated as:
Margin = All Milk Price/cwt – [1.0728 X $ corn/bu] +
[0.00735 X $ SBM/ton] + [0.0137 X $ alfalfa hay/ton]
Prices are taken from NASS and AMS to determine
margin. The milk price, taken from NASS, is
representative of prices producers received from
cooperatives, processors, and plants across the U.S.
The corn and alfalfa hay prices are also from NASS and
representative of prices producers receive. Soybean
meal prices are from AMS and represent Soybean
Meal delivered by rail at Decatur-Central Illinois.
Prices will be one month lagged due to establishing
finalized prices. Therefore, if an indemnity payment is
triggered there will be about a two month lag in
payment to the participating operation. Payments per
bi-monthly period will be made on 1/6 of covered
production history.
Registration Periods
The following are the registration periods where
operations can enroll and/or select coverage:
-
A $100 administration fee is due each year an
operation is enrolled in MPP. This annual
administration fee is due in the registration period.
Annual premiums paid for 2014 are also due at
registration. Producers have payment options with the
2015 – 2018 premiums; 25 percent of the premiums
2014: 2 September to 28 November 2014
2015: 2 September to 28 November 2014
2016: 1 July to 30 September 2015
2017: 1 July to 30 September 2016
2018: 3 July to 2 October 2017
Initially operations will fill out CCC-781 to confirm
eligibility, establish PH, and enroll in MPP. Then each
year producers will fill out CCC-782 to select coverage
% and level. Once operations enroll in MPP they are in
for the life of the Farm Bill; operations can opt to
register in a later year, but they will forgo production
bumps until year of enrollment.
Additional resources can be found on FSA, Dairy
Markets and Policy, and ISU Dairy Team websites.