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USDA Launches New Dairy Insurance Program

August 29, 2014

Dairy farmers squeezed in recent years by low milk prices and high feed costs can begin signing up next week for a new program replacing old subsidies that didn't factor in the price of corn.

Signups for the new program will run Sept. 2 to Nov. 28, U.S. Agriculture Secretary Tom Vilsack announced Thursday. Farmers must enroll then to participate in the program in what's left of 2014 and in 2015. They will have annual signups after that.

The new program is a kind of insurance that pays farmers when the difference between milk prices and feed prices shrink to a certain level. The previous program paid farmers when milk prices sank too low, but didn't account for their costs.

Dairy farmers have struggled in recent years even with good milk prices. Feed costs rose because of demand for corn from the ethanol industry and droughts, including one in 2012 that covered two-thirds of the nation.

The price for benchmark December corn on Thursday as $3.67, compared to about $5.90 two years ago.

U.S. Sen. Patrick Leahy, D-Vermont, warned farmers not to be complacent. In 2009 and 2012, milk gluts sent prices tumbling below the cost of production.

"Dairy prices are very high right now ... but you only have to have about a 1 or 1.5 to 2 percent surplus, and every dairy farmer knows that can go into a tailspin," said Leahy, who joined Vilsack in announcing the program.

The U.S. Department of Agriculture has an online tool to help farmers figure out how much insurance they need.

Farmers can buy catastrophic coverage for $100 per year. It would pay if the difference between milk prices and feed costs sank to less than $4 per hundred pounds of milk on average. If a bigger margin is needed to make ends meet, farmers can buy additional coverage and pay a higher premium.

Ralph McNall, who has 200 Holsteins in Fairfax, Vermont, said the margin protection program is "as fair a program as they could hope to achieve." He said he appreciated the fact that it took feed prices into account.

Dairy economist Mark Stephenson said one difference between the dairy program and home or auto insurance is that most people don't know when they will have a car accident or home fire, but dairy farmers often have some warning of a milk glut or spike in feed prices.

"It's not going to be a perfect forecast, but you'll know generally if it's going to be a good year or bad year," he said.

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RELATED TOPICS: Dairy, Policy, Livestock, News, Milk, USDA

 
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