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Farm bill is good fit for region's dairies

FERGUS FALLS, Minn. -- Dairy farmers have until Nov. 28 to sign up for the new Margin Protection Program under the new federal farm bill. Most will wait until after harvest, but officials urge not to wait until the last minute.

FERGUS FALLS, Minn. -- Dairy farmers have until Nov. 28 to sign up for the new Margin Protection Program under the new federal farm bill. Most will wait until after harvest, but officials urge not to wait until the last minute.

Jim Salfer, a University of Minnesota extension educator, spoke to 40 producers and others attending an informational meeting in Fergus Falls, Minn., on Sept. 30. It was the second in a series of 18 informational meetings scheduled through Nov. 7 throughout the state. Decisions will be similar for farmers in Minnesota, North Dakota and South Dakota, he said.

Salfer unveiled a computer model that predicts how the program works for different sized operations in the context of predicted input costs and milk price scenarios.

Simple signup

A basic level of coverage is $100 per farm. Buy-up coverage varies based on how much milk the farm has produced in the past three years. The farmer decides what percent of production he or she wants to protect (25 to 90 percent) and what margin he or she wants to protect between projected annual national average milk prices and an annual average feed cost.

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Unlike the commodity crop provisions in the farm bill, dairymen have the option of signing up every year through the farm bill life, which is five years.

The system favors farmers with smaller operations, who pay premium buy-ups starting at 10-cent increments for increased coverage for $5.50-per-hundredweight coverage, and up to 50 cents for $8-per-hundredweight coverage. Large-scale producers will see premiums skyrocket to $1.39 per hundredweight to achieve the same $8-per-hundredweight margin level. Larger farms might not go over $6.50 unless they're sure it's going to be a bad margin year, Salfer said.

Salfer noted that a 10-cent premium level is less than the 15-cent-per-hundredweight level farmers pay for their research and promotion check-off. The program tends to work well for Minnesota because the state's milk price tends to be higher than national averages and the price of feed tends to be lower.

Calculator tool

The U of M's program calculator figures in a number of national factors, including projected commodity prices and dairy demand. It also includes a look-back function, showing how the same formula with the same factors would have predicted the prices in years past, and how it would have compared the projections with what actually happened.

In six out of seven of the past years, the model correctly predicted a positive return for participating in the program. The models can't always predict the so-called "black swan" economic events such as the major recession melt-down in 2008, which affected demand. Related models also allow farmers to look at other nonfeed costs for the same years, which the farmer might wish to cover by boosting the premium somewhat.

Salfer said the formula might be different in areas such as western North Dakota, where transportation costs might be higher but feed costs might be lower. Farmers signing up in 2014 will receive a production history "bump" -- a factor of 1.0087.

U.S. Rep. Collin Peterson, D-Minn., is concerned that farmers might not sign up, as milk prices are strong now because an unprecedented 17 percent of U.S. milk production is being exported.

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"One of the problems with having such a dependence on exports is that it can change in a hurry, and it can be very volatile," he said.

"I'm hoping that everybody signs up for the catastrophic coverage, pays the $100 administrative fee, and locks in their production base so they get adjustments going forward," said Peterson, an accountant by trade. "If you're a smaller producer, below 4 million pounds, the $7 margin coverage is so inexpensive that I think it'd be a mistake not to take it."

Small is good

Leon Johnson, county executive director for the West Ottertail County FSA office, thinks farmers won't start signing up until harvest is complete -- hopefully Nov. 1. He couldn't say whether a register for backlogs will be authorized for this program. His county has only 50 dairies, while some counties have 600.

Salfer said farmers must choose between the MPP-Dairy and the old Livestock Gross Margin-Dairy program, which is run by the U.S. Department of Agriculture's Risk Management Agency as more of a crop insurance program. Fewer than 1 percent of U.S. dairy farmers nationally and fewer than 5 percent in Minnesota ever used that program because it was too complicated, was limited in its signup times, and had limited and unpredictable amounts of funding available, he said.

Related Topics: DAIRYLIVESTOCK
Mikkel Pates is an agricultural journalist, creating print, online and television stories for Agweek magazine and Agweek TV.
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