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May 18, 2018

Dairy Industry: What You Need to Know About the Margin Protection Program

See the changes in dairy industry margin protection offered by the USDA’s Margin Protection Program (MPP-Dairy)

Especially with the re-enrollment deadline of June 1st fast approaching.

The dairy industry is an important one in the U.S., but it’s also one that is constantly stuck between low dairy prices and high feed prices. At times, the state of these two conditions means a dairy operation isn’t able to make a profit. In order to ensure a strong dairy industry, the USDA started the MPP-Dairy to offer the country’s dairy industry margin protection. Some significant changes have been made recently to the program that dairy operators should be aware of. See the details of those changes below.

The Margin Protection Program Defined

In business, a margin is defined as the difference between the seller’s cost for acquiring products and the selling price. To help mitigate this for the dairy industry, there is a voluntary risk management program that offers dairy industry margin protection. It’s called the Margin Protection Program and it ‘kicks in’ when there is a margin between what producers can sell their milk for and the cost of feed.

The USDA defines the program as money paid to participating dairy producers “when the difference between the national all-milk price and the national average feed cost (the margin) falls below a certain dollar amount elected by the producer.” This ‘safety net’ ensures dairy producers will be able to cover their costs, stay in the black, and continue to produce milk and other dairy products.

Changes to the Margin Protection Program for Dairy

The most current version of the Margin Protection Program was authorized by the 2014 Farm Bill through the end of 2018. However, the Bipartisan Budget Act of 2018 made changes for the 2018 coverage year that dairy producers must be aware of. The MPP-Dairy changes are intended to offer better protections for dairy operations from changing markets.

Dairy producers will need to re-enroll in the new program. The MPP-Dairy sign up deadline is June 1st so if they haven’t already enrolled, producers need to act quickly to ensure coverage. Changes to the Margin Protection Program for Dairy, per a USDA release on the changes, include:

  • Calculations of the margin period is monthly rather than bi-monthly.
  • Covered production is increased to 5 million pounds on the Tier 1 premium schedule, and premium rates for Tier 1 are substantially lowered.
  • An exemption from paying an administrative fee for limited resource, beginning, veteran, and disadvantaged producers. Dairy operators enrolled in the previous 2018 enrollment period that qualify for this exemption under the new provisions may request a refund.

Dairy Producer Coverage & Financial Future

Dairy producers can find a web tool that can be accessed through any device to help determine their coverage needs here. According to the USDA, dairy producers can “quickly and easily combine unique operation data and other key variables to calculate their coverage needs based on price projections,” and they can also “review historical data or estimate future coverage based on data projections,” to further assist with choosing a level of coverage.

AgAmerica Lending supports any program or policy that supports our nation’s dairy producers. With our full spectrum of customizable financing solutions we’re also here to help our country’s ag operations grow and succeed. Contact our team of experts today and they can get you set up for a healthy financial future.

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