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Dairy Margin Insurance New, Not Complicated

March 5, 2014

Source: University of Missouri

When dairy farmers first hear of the Margin Protection Program for Dairy Producers, they become confused about the new farm bill safety net.

"It is new and different, but it really isn’t complicated," says Joe Horner, University of Missouri Extension economist.

Margin insurance, however, takes more planning than the Milk Income Loss Contract (MILC) in past farm bills.

The USDA program is voluntary, so producers don’t have to enroll. But the insurance is subsidized and some is free. The program allows those enrolled to select a level of margin, or income over feed costs.

Margins are calculated at the national level, not at farm level. For decision-making, however, Horner urges producers to know their dairy margin — milk income less feed costs. That margin helps decide which level to insure.

The national feed cost is based on prices of corn, soybean meal and alfalfa hay.

USDA will recalculate the margin every month. If the margin drops below the insured level for two months, the producer receives a check. Insurance pays when the margin is squeezed.

The insurance rates are fixed for the life of the farm bill. Premiums are higher for producers selling more than 4 million pounds of milk a year. There is a free lower level of insurance.

The 4 million pounds level equals about 200 dairy cows. Most Missouri farms are under that level, Horner says.

The big decision will be how much margin to insure, Horner says. This takes homework.

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RELATED TOPICS: Dairy, Policy, 2014 Farm Bill

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