A webinar hosted by the University of Wisconsin today on the dairy provisions of the Agricultural Act of 2014 demonstrated that there are many, many unanswered questions.
Most notably, the provision that farmers can participate in either the new margin insurance program or Livestock Gross Margin insurance-Dairy (LGM-Dairy) is already complicated because some producers might have LGM-Dairy contracts that cover September and October. But if the margin insurance program starts September 1, will that mean they won’t be able to participate in margin insurance. And what happens if farmers must sign up for the entire five years of the farm bill?
There are also differences in the details of the two programs. While margin insurance coverage is limited to farm’s highest annual milk history of 2011, 2012 or 2013, LGM-Dairy has no production limits. LGM-Dairy will be offered only as long as government insurance subsidies are available. There are no limits on the margin insurance. The margin insurance program insures a milk-feed margin that is based on national prices. LGM-Dairy allows farmers to tailor coverage to their particular farm and rations.
Dairy farmers will have to calculate their basis for both milk and feed (the difference between national and local prices) to determine what the margins actually insure, says Brian Gould, an dairy economist with the University of Wisconsin. In addition, the margin insurance calculation is based on a whole herd ration, covering milking cows, dry cows and replacements. What happens if a farm does not raise replacements? How does that affect the margins he’s insuring?
There are even more basic questions:
• Will sign-up be annual, or be for the entire five years?
• If it’s annual, can farmers toggle back and forth between margin insurance and LGM-Dairy, depending on which is more advantageous to them?
• When will sign-up deadlines be?
• When will premiums be due?
• How quickly will indemnities be paid?
John Newton, a dairy economist with the University of Illinois, is building an on-line decision tool that will help producers work through difference scenarios once these questions are answered. The tool will be available at www.dairymarkets.org. Newton also has numerous farm bill policy papers posted at www.farmdocdaily/illinois.edu .
Newton will be hosting another webinar on dairy provisions at www.farmdocdaily/illinois.edu March 26. Hopefully, he says, USDA will have answered many of these questions by then.