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.
Another challenge is that the program uses national averages to calculate the margin, so farmers have to figure out how their local markets compare, said Stephenson, the director of the Center for Dairy Profitability at the University of Wisconsin.
"So, if you knew that in 2013, you were OK, but you had some difficulties — 2012 was really bad — you might decide that a $5 margin was when you had a really hard time," Stephenson said. But, he added, "Once you determine that, you don't have to do that all the time. You just need to look at the forecast for the year ahead."
State extension services and USDA's Farm Service Agency will provide training for farmers signing up for the program, Vilsack said.
Greg Tauchen, whose family has 1,000 cows in Bonduel, Wisconsin, attended training offered earlier this year by the Land O'Lakes farmer cooperative. He decided his best options were either buying catastrophic insurance for $100 or going up to the $6.50 margin, which would cost roughly $60,000 in premiums. He's still debating what to do, given this year's forecast is good.
"I think farmers are going to jump in and out," when it comes to buying extra coverage, he said. But, he added, signing up for catastrophic coverage "is a no brainer."