Foundation for the Future: Your Questions Answered

June 5, 2011 08:49 PM

With Land O’Lakes’ membership stretching across the country, we asked the cooperative’s public affairs department what questions they were being asked about Foundation for the Future.

Which of the FFTF programs are voluntary and which are mandatory?


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Margin protection calculator

Participation in the margin protection program would be voluntary. Margin insurance would represent an additional risk management tool for dairy producers; producers who choose not to use the base (provided at no cost) or supplemental programs would suffer no consequences.

Participation in the market stabilization program would be mandatory and impact all milk producers. This program would strive to maintain adequate margins by sending stronger, faster market signals to producers to reduce their milk production. Analysis shows the program would reduce price and margin volatility and help avoid prolonged periods of low or negative margins.

What’s the cost of the margin protection program?

The base level of margin insurance, estimated to be $4 per cwt. and to cover 90% of a producer’s historical base, would be provided at no cost to producers.

Additional supplemental insurance would be provided at costs that largely depend on the level of margin protection desired by a producer—the higher the level of additional margin protection, the higher the cost of the supplemental insurance.

For more details about estimated costs of supplemental insurance, see this article online for a link to the Margin Protection Calculator. This calculator allows producers to determine customized coverage options by inputting their own individual cow numbers and milk production.

Why does FFTF focus on feed costs instead of total operating costs? Why not use a regional margin over feed costs approach?

The margin protection program is not meant to assure a profit margin—the difference between the milk price and total operating costs—but to help cover the operating costs over feed costs. What drained producers’ equity in 2009 was that the difference between milk price and feed expenses didn’t cover the other costs of operation. While feed costs vary across milk-producing regions, there is less variability when margins shrink. A regional program was looked at, but the availability of data on a regional basis was a major concern. Using a national estimate of margin over feed would allow the program to be more responsive to producers’ needs.

How would new producers be brought into the FFTF programs?

The voluntary margin protection program would be made available to new producers. Additionally, new producers would be required to participate in the marketwide stabilization program.

Won’t producers be worse off without the Milk Income Loss Contract?

The margin protection program provides a hard margin floor on 90% of a producer’s base milk production regardless of the amount of milk production in his base. By contrast, MILC provides just 45% of the difference between the Class I price and $13.69 on a maximum of 2.985 million pounds of milk per year.

Source: Land O’Lakes

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