Dairy producers must make a decision on a new risk management program offered under the 2014 Farm Bill.
Registration for the USDA Margin Protection Program (MPP) will probably start in September, says Joe Horner, a dairy economist at the University of Missouri.
In the past when milk prices dropped below a set level, Milk Income Loss Contract (MILC) support kicked in. Now, the USDA Farm Service Agency's MPP gives producers margin protection.
Farmers sign up the portion of their milk production they want covered, then decide a level of margin above feed cost they want to purchase. The lowest coverage option is free.
"Protecting that margin above feed costs can help a dairy farm stay in business in hard financial times. Choosing the best option is important," Horner says. Risk mitigation depends on strength of the dairy business and level of risk that can be absorbed.
Horner and Scott Brown, an MU livestock economist, developed calculator software to help producers find optimal margin and participation levels.
"The process sounds complicated," Horner says. "But the calculator makes decisions easier."
Horner and Brown will stage in-person demonstrations at two workshops Aug. 26 in southwest Missouri.
At 10 a.m., they will be at the MU Southwest Research Center in Mount Vernon.
At 1:30 p.m., they will meet at the Missouri State University Experiment Station in Mountain View.
For producers who cannot attend, a webinar will be held Sept. 19 from noon to 1 p.m. Details are available at local MU Extension offices.
Whereas the expiring MILC program followed prices and kicked in automatically, the MPP pays the dairy farm when the national margin drops below a set threshold for two consecutive months. Margins are based on a formula using income from milk and costs of corn, soybean meal and alfalfa hay.
Farmers' decisions depend on how tight a margin their farm can tolerate and how much they want to pay for insurance. Producers need not sign up the full volume of milk they will produce. That will depend on the operator's risk acceptance.
Dairy operators must sign up for the MPP through their local USDA Farm Service Agency office.
"It will help if the producer does some calculations before their appointment to sign up," Horner says. "The software will help."
Each operator can customize the protection level to fit their farm's capacity to absorb losses. Protecting the margin can help farms profit.
The MPP covers unexpected drops in milk prices or run-up in feed costs.
Coverage is not based on individual farms' milk prices and feed costs because the MPP uses nationally published prices.
Source: University of Missouri