Today is the first day of sign-up for the Dairy Margin Protection Program, which was created in the 2014 farm bill. The last day to sign-up for the program for 2014 and 2015 coverage is November 28.
The MPP provides insurance against collapsing milk-feed price margins. The base "catastrophic" level is $4, which is free after farmers pay a $100 annual administrative fee. Dairy farmers can purchase additional coverage, in 50¢/cwt increments, up to $8. In 2014 and 2015, premiums are reduced 25% for this coverage to encourage sign-up.
"For what it's worth, we are recommending that farmers not rush to sign up, or Register as USDA prefers to call the process," says Andy Novakovic, a dairy economist with Cornell University. "There are two reasons. One, the decision warrants careful thought. Two, market portents could change, deteriorate, considerably between now and the end of November.
"Few analysts expect that 2014 will end in the red, but it is clear that the only direction for markets to take over the next year is downward. Current CME futures prices for milk and feedstuffs suggest that margins will remain well above average through 2015," he says.
"Nevertheless, despite record setting butter prices recently and all the other bullish signs, there are good reasons to expect that markets will break this winter. The expectations for mid to late 2015 could sour sufficiently to justify thinking about MPP-Dairy simply for that reason. Let's hope not, but all this speaks to the merits of waiting until November to see what markets will suggest."
Read more detail on the Dairy MPP here.