Farm bill brings changes

BROOKINGS, S.D. -- Among changes found within the new farm bill, the Margin Protection Program for dairy producers, is an important new safety net.

"The MPP is a voluntary safety net program that provides producers with indemnity payments when a national benchmark for dairy income, minus feed costs (i.e. a margin), falls below coverage levels producers select on an annual basis," explains Kim Dillivan, South Dakota State University Extension crops business management field specialist.

The MPP contains four main components:

• Actual Dairy Production Margin

• Actual Dairy Production History

• Coverage Percentage

• Coverage Level

Dillivan explain that ADPM is defined as the difference between the national average price per hundredweight of milk, and the cost of the three primary feed ingredients -- corn, soybean meal, and alfalfa hay -- which comprise the majority of rations fed on dairies.

This feed cost is determined by the national average price for corn and alfalfa, based on the monthly Agricultural Prices Report by the U.S. Department of Agriculture National Agricultural Statistics Service, and the central Illinois price for soybean meal, reported by USDA Agricultural Marketing Service.

"These feed ingredient prices are weighted so that this summed value represents the composition and cost of a typical dairy ration that produces 100 pounds of milk," Dillivan says. "It is a herd-level feed cost of producing 100 pounds of milk and, as such, includes the amount of feed fed to dry cows, replacements and calves."

National average feed cost and milk price are calculated monthly, but the ADPM will be calculated for each consecutive two-month period, using milk price and feed cost averages for those two months.

"So, six times annually, USDA will calculate a margin to determine whether indemnities are paid," he says.

Participating dairies will be assigned an Actual Dairy Production History based upon their highest annual production in 2011, 2012 or 2013 calendar years. In future years, ADPH will likely be adjusted by the Secretary of Agriculture to reflect changes in U.S. milk production. New dairies that have been operating less than a year will estimate annual production by either extrapolating monthly amounts to an annual estimate or by using their actual herd size and national yield amounts.

Dillivan explained that participating producers will elect what percent of their milk production will be covered and the level of margin coverage. These annual elections will determine their total annual premium and their potential indemnity payments. Producers may elect coverage percentage between 25 percent and 90 percent of their ADPH, in intervals of 5 percent. Producers also elect their coverage level from $4 per hundredweight, up to $8 per hundredweight, in intervals of 50 cents per hundredweight.

He adds that if the ADPM for any two-month period falls below a producer's elected margin coverage level, this difference will be paid on the coverage percentage of their ADPH, divided by six.

"As with most new USDA programs, specific details of the MPP will be determined as the rules and regulations are written to administer the program," Dillivan says. "According to the farm bill, the MPP is to be established by Sept. 1, 2014; however, it remains unclear whether participation can commence before Sept. 1."

Each dairy operation that participates in the MPP will be required to pay an annual administrative fee of $100.

Dairy Product Donation Program

Also newly introduced with the new farm bill, the Dairy Product Donation Program requires the Secretary of Agriculture to implement a dairy donation program whenever the ADPM is below $4 per hundredweight in each of two consecutive months.

"Should this program commence, USDA would purchase various dairy products at market prices for distribution to food banks and other donation programs. USDA is prohibited from storing these products and the organizations receiving dairy donations cannot sell the items into commercial markets," Dillivan says.

He explains that as one of the main features of new dairy policy in the farm bill, MPP is a safety net program that provides participating producers with indemnity payments when actual dairy margins fall below levels of coverage that producers select on an annual basis.

"These dairy margins are calculated by national milk prices, minus feed costs. Producers pay premiums that are based on the level of coverage selected and individual dairy milk production level," he says.