Margin Protection Program for Dairy Producers (MPP-Dairy) Dr. Marin Bozic

Margin Protection Program for Dairy Producers (MPP-Dairy) Dr. Marin Bozic

2 Major Dairy Provisions of the Agricultural Act of 2014 REPEALED NEW Milk Income Loss Contract Dairy Product Price Support Program Dairy Export Incentive Program Dairy Forward Pricing Program Dairy Price Support Program ( dairy cliff ) Livestock Gross Margin for Dairy Cattle Margin Protection Program for Dairy Producers Dairy Product Donation Program Potential California Federal Order

3 Margin Protection Program for Dairy Producers USDA risk management program that replaces MILC program. Voluntary program, with no supply management of any kind. Offers protection against low margins that may come from low milk prices, high feed prices, or a combination of both. Provides a payment when the margin falls below a specified level. Very simple and hassle-free

4 MPP-Dairy: Four Key Concepts Actual Dairy Production Margin Production History Coverage Percentage Coverage Levels & Premiums

5 What is the margin Determined based on the difference between National all-milk price National average cost of feed used to produce a hundredweight of milk

6 Actual Dairy Production Margin Approximates milk revenue over all feed costs on the farm Based on published USDA national data Corn and alfalfa hay reported in NASS Agricultural Prices Soybean meal reported in AMS Market News for central IL Actual Dairy Production Margin = U.S. All-Milk Price - 1.0728 x NASS Corn Price ($/bu) - 0.00735 x AMS Soybean Meal (Central IL) ($/ton) - 0.0137 x NASS Alfalfa Hay ($/ton)

7 Actual Dairy Production Margin: Historical Mar-Apr 14: $13.87 May-Jun '09: $2.49

Class III Milk Price 8 Understanding MPP Margins How low do Class III milk prices have to decline to trigger MPP-Dairy payments? $15.00 $14.75 $14.50 $14.25 $14.00 $13.75 $13.50 $13.25 $13.00 $12.75 $12.50 $12.25 $12.00 $11.75 $11.50 $11.25 $11.00 $10.75 $10.50 $10.00 $8.00 $7.50 $7.00 $6.50 $6.00 $5.50 $5.00 $4.50 $4.00 MPP-Dairy Margins

9 Eligible Dairy Operations Produce milk from cows in the U.S. that is marketed commercially at the time of each annual election in MPP-Dairy. Not participate in LGM-Dairy (no overlapping coverage in 2015) Must be U.S. citizen or permanent resident. No production size limits. No adjusted gross income limits. May consist of 1 or more dairy producers that produce and commercially market milk as a single unit Must have dairy producers who share in the risk of producing the milk and make contributions commensurate with their share of the proceeds.

10 Production History Unlike old dairy safety net based on MILC, there are no categorical limits to size of the farm. You can protect up to 90% of your production history, which is the highest of your milk marketings in 2011, 2012, and 2013. Production history is assigned to the operation, not the individual. Each year, your production history will increase based on national growth in milk yield per cow. The bump for 2015 is 1.0087. Production history will never be reduced because herd size changes or changes in national milk production.

11 Producers with Multiple Dairies In general, each dairy operation is treated as a separate program participant. Producers with multiple dairies can choose to register some, all, or none of their dairies. Dairy operations that participated in MILC will remain as constituted in MILC. Dairy operations that did not participate in MILC will be determined separate and distinct according to criteria established by FSA. Beware! It is forbidden to reconstitute A farm so as to profit more from the farm bill dairy programs.

12 New Dairy Operations The FSA will treat as new dairy operation any operation that has less than 12 full months of commercial milk marketings as of February 7, 2014. Can you register a new dairy operation for MPP-Dairy? In short, yes, unless you already have a (pre-)existing dairy operation registered for MPP. Affiliation Rule - A new dairy operation will be treated as an affiliated dairy operation and not be treated as a separate dairy operation under MPP-Dairy if producers that collectively own more than 50 percent of the new dairy operation also collectively own more than 50 percent interest in another dairy operation registered in MPP-Dairy.

13 Importance of February 7, 2014 New Dairy Operation can establish production history in one of two ways: Based on a seasonal index Based on herd size and the national rolling herd average

14 Coverage Percentage Each year, producers may choose coverage percentage of 25% to 90% of their production history, in 5% increments. Covered production history (CPH) = production history multiplied by coverage percentage. Copyrighted Material

15 MPP Coverage Levels and Premiums Coverage Level Tier 1 4mil lbs CPH ($/cwt) Tier 1 Discounted Premium (2014 & 2015) Tier 2 >4 M lbs. CPH ($/cwt) $4.00 $0.000 $0.00000 $0.000 $4.50 $0.010 $0.00750 $0.020 $5.00 $0.025 $0.01875 $0.040 $5.50 $0.040 $0.03000 $0.100 $6.00 $0.055 $0.04125 $0.155 $6.50 $0.090 $0.06750 $0.290 $7.00 $0.217 $0.16250 $0.830 $7.50 $0.300 $0.22500 $1.060 $8.00 $0.475 $0.47500 $1.360

16 MPP Coverage Levels and Premiums $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $4.00 $4.50 $5.00 $5.50 $6.00 $6.50 $7.00 $7.50 $8.00 First 4 M lbs PH After 4 M lbs PH

17 Registration Period: 2014 & 2015 SEP 02 DEC 05 MPP-Dairy Registration Opens Last Day to Register for 2014 & 2015

18 Registration Period For 2016 JUL 01 SEP 30 MPP-Dairy Registration & Annual Coverage Election Period Opens Last Day to Register or Choose Coverage for 2016

19 Administrative Fee and Premium Due Premium fees are due either: 100% before end of Registration/Coverage Election Period OR At least 25% of total premium before February 1 The remaining 75% by June 1.

MPP Payments: 2012 Example Consecutive Two-Month Periods 2012 Two-month Average Coverage Level & Indemnities $4.00 $6.50 January 7.46 February 5.78 6.62 0.00 0.00 March 4.96 April 4.22 4.59 0.00 1.91 May 3.40 June 3.45 3.43 0.57 3.07 July 2.67 August 3.08 2.88 1.12 3.62 September 5.60 October 7.83 6.71 0.00 0.00 November 8.21 December 7.08 7.64 0.00 0.00

Gross Indemnities: 2000-2013 ---- $4.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 2000 2002 2004 2006 2008 2010 2012 21

22 MPP-Dairy Payments for $5.50 Coverage Level $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 2000 2002 2004 2006 2008 2010 2012

23 MPP-Dairy Payments for $6.50 Coverage Level $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 2000 2002 2004 2006 2008 2010 2012

A Simple Way to Think about Risk Management with MPP Coverage Level Tier 1 4mil lbs. Covered Prod. Hist. ($/cwt) Tier 2 >4 M lbs. Covered Prod. Hist. ($/cwt) $4.00 $0.000 $0.000 $4.50 $0.010 $0.020 $5.00 $0.025 $0.040 $5.50 $0.040 $0.100 $6.00 $0.055 $0.155 $6.50 $0.090 $0.290 $7.00 $0.217 $0.830 $7.50 $0.300 $1.060 $8.00 $0.475 $1.360 24

25 Net Payments for Farms with Less than 4 mil lbs PH Coverage Level 2000-2014 2007-2014 2009 $4.00 0.05 0.09 0.42 $4.50 0.07 0.15 0.75 $5.00 0.10 0.21 1.07 $5.50 0.12 0.27 1.38 $6.00 0.16 0.35 1.72 $6.50 0.21 0.45 2.10 $7.00 0.20 0.46 2.39 $7.50 0.25 0.54 2.73 $8.00 0.25 0.55 2.97

26 Net Payments for Farms with 60 Mil Lbs PH Coverage Level 2000-2014 2007-2014 2009 $4.00 0.05 0.09 0.42 $4.50 0.06 0.14 0.74 $5.00 0.08 0.19 1.05 $5.50 0.06 0.21 1.32 $6.00 0.06 0.25 1.62 $6.50 0.01 0.25 1.90 $7.00-0.42-0.15 1.78 $7.50-0.51-0.22 1.97 $8.00-0.63-0.33 2.08

27 MPP-Dairy vs MILC $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 MPP: $4.00/cwt Coverage Level MPP: $6.50/cwt Coverage Level MILC

$/cwt 28 Sign-up for 2008: Information on Sep 30, 2007 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2008

29 150 Hd: Expected Returns to MPP-Dairy in 2008 Coverage Level Fees & Premiums Expected Indemnity Net Revenue $4.00 0.00 0.00 0.00 $4.50 0.01 0.00-0.01 $5.00 0.03 0.00-0.03 $5.50 0.04 0.01-0.03 $6.00 0.06 0.01-0.05 $6.50 0.09 0.02-0.07 $7.00 0.22 0.04-0.18 $7.50 0.30 0.07-0.23 $8.00 0.48 0.13-0.35

30 2000 Hd: Expected Returns to MPP-Dairy in 2008 Coverage Level Fees & Premiums Expected Indemnity Net Revenue $4.00 0.00 0.00 0.00 $4.50 0.02 0.00-0.02 $5.00 0.04 0.00-0.04 $5.50 0.10 0.01-0.09 $6.00 0.15 0.01-0.14 $6.50 0.27 0.02-0.25 $7.00 0.78 0.04-0.74 $7.50 1.00 0.07-0.93 $8.00 1.29 0.13-1.16

$/cwt 31 Sign-up for 2009: Information on Sep 30, 2008 $14.00 $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2009

32 150 Hd: Expected Returns to MPP-Dairy in 2009 Coverage Level Fees & Premiums Expected Indemnity Net Revenue $4.00 0.00 0.07 0.07 $4.50 0.01 0.10 0.09 $5.00 0.03 0.16 0.14 $5.50 0.04 0.24 0.20 $6.00 0.06 0.36 0.31 $6.50 0.09 0.50 0.41 $7.00 0.22 0.69 0.47 $7.50 0.30 0.92 0.62 $8.00 0.48 1.20 0.73

33 2000 Hd: Expected Returns to MPP-Dairy in 2009 Coverage Level Fees & Premiums Expected Indemnity Net Revenue $4.00 0.00 0.07 0.07 $4.50 0.02 0.10 0.08 $5.00 0.04 0.16 0.12 $5.50 0.10 0.24 0.14 $6.00 0.15 0.36 0.21 $6.50 0.27 0.50 0.23 $7.00 0.78 0.69-0.09 $7.50 1.00 0.92-0.08 $8.00 1.29 1.20-0.09

34 MPP-Dairy Subsidies are Implied in Margin Forecasts Expected Margins Much Below Historical Average Expected Margins Near Historical Average Expected Margins Above Historical Average MPP-Dairy Premiums are Very Highly Subsidized. Modestly Subsidized. MPP-Dairy Premiums are Too Expensive!

35 Margin Protection Program vs LGM-Dairy MPP-Dairy enrollment: No impact on ability to use other risk management systems except for Livestock Gross Margin for Dairy (LGM) Cannot participate in both MPP and LGM

36 Margin Protection Program vs LGM-Dairy Feature MPP LGM-Dairy Subsidies? Guaranteed to be able to insure decent margins? Availability? Countercyclical. Sometimes negative, sometimes over 90% Yes, price for $4.00- $8.00 is fixed Once per year, every year. Fixed as % of price, up to 50% No, you can only insure margins that are expected by the market. Once per month, while money is available for subsidies.

MPP-Dairy Decision-Support Tool 37

internet: SC Public password: saintcharles webpage: http://dairymarkets.org/mpp click on: Decision Tool

39 Built With Farmers in Mind 4 CLICKS TO GET THE INFORMATION YOU NEED FOR MPP ENROLLMENT Only one data point needed: Farm s Milk Production History

Four Steps of the Decision Tool WHAT IS YOUR PRODUCTION HISTORY? EVALUATE MPP MARGIN FORECAST PRINT ENROLLMENT FORMS ONLINE SELECT A COVERAGE LEVEL & PERCENTAGE 40

41 Works on All Platforms WORKS WITH ALL ELECTRONIC DEVICES All calculations are performed in the cloud to maximize efficiency.

Secure And Free DATA SECURITY 100% Free 24/7 Access Farmer Data is Not Collected Always Available & Free to Use 42

Let s See How it Works 43

Online Educational Material Find videos, PowerPoints, printed material, and links to other Farm Bill decision tools online. www.dairymarkets.org/mpp 44

MPP-Dairy Forms: CCC-781 and CCC-782 45

Workshops: This material is based upon work supported by USDA-NIFA under Award Number 2012-49200-20032 MPP-Dairy Tool: The National Program on Dairy Markets and Policy is working with the University of Illinois led consortium National Coalition for Producer Education, which is supported by the U.S. Department of Agriculture, Farm Service Agency, under Agreement No. 58-0210-4-002 N. Mobile Risk Management Lab: Laptops used in these workshops have been provided by the Center for Farm Financial Management.

MODERN FARM EQUIPMENT

Dairy Gross Margin, LLC

Margin Protection Program for Dairy Producers Dr. Marin Bozic mbozic@umn.edu Department of Applied Economics University of Minnesota-Twin Cities 317c Ruttan Hall 1994 Buford Avenue St Paul, MN 55108 Photo Credits: Mara at Blue Diamond Dairy Sadie Frericks, 2010