Choices Abound for Managing Dairy Risk in Tough Market03/06/2018
Farmers will have plenty to reconsider for risk management over the next couple of months.
First, they will have to give the Margin Protection Program for Dairy a second look after USDA’s Farm Service Agency rolls out the updated program.
Also, the cap for Livestock Gross Margin insurance for dairy was removed in last month’s budget bill, allowing for additional funding if needed.
And finally, the American Farm Bureau Federation’s insurance program called Dairy Revenue Protection will be rolled out this year.
“There is a lot of happening for risk management tools for dairy,” Alan Zepp from the Center for Dairy Excellence said during last week’s Protecting Your Profits call.
The MPP-Dairy program could get a second look from farmers who qualify for Tier 1 coverage, he said. All farms enrolled will benefit from monthly payment periods instead of the previous two-month coverage periods.
Zepp said additional clarification by the Farm Service Agency is needed to define which farmers will qualify as beginning, limited resource, disadvantaged or military veteran farmers.
These farmers will be able to waive the $100 enrollment fee.
Eligibility for Tier 1 coverage was expanded to farms that produce up to 5 million pounds of milk per year. This 1 million pound increase will extend eligibility to herds in the 220-250 head range. Premiums have been reduced for this tier.
Larger farms under Tier 2 coverage will see minimal rate changes.
Zepp said he expects there will be renewed interest in MPP once FSA announces opens 90-day sign up period for the new program.
In the past, LGM-Dairy, which does not have a maximum herd size, has run out of funding, he said. The revisions in the budget remove that cap.
“This does not create new funding support for LGM premium subsidies, but it does create an opportunity to expand funding for that purpose later,” he said.
Zepp said MPP-Dairy margins remain above the $8 level, and LGM-Dairy margins are below that program’s three-year average.
Some LGM-Dairy policies have the potential for an indemnity payment, he said, so policy holders should check with their crop insurance agents.
The market signals are mixed, so farmers have to be cautious in considering which risk management choices are best for their farms.
For instance, milk production continues to rise and feed prices are low, but soybean prices have started to creep up.
Farm Bureau has been working with USDA to finalize the rules for its Dairy Revenue Protection program, Zepp said.
Dairy-RP will be similar to crop revenue protection polices in that the revenue guarantee would be based on futures prices, expected production and market-implied risk, and would be priced using actuarial methods.
The size of the U.S. dairy herd has held steady since last May, but milk production continues to grow. The European Union’s dairy stocks are still burdensome, Zepp said, while U.S. dairy inventories are historically high, which adds to the price challenge.
The good news, he said, is that U.S. dairy exports are competitive and growing. The U.S. dollar is at its lowest point against foreign currencies since 2014, but still has a ways to go to reach the level that kicked off expansions of U.S. dairy exports in the late 2000s and early 2010s.
Exports are “what we need to take care of the inventories,” Zepp said. “We need to move these products overseas.”
Global dairy production has started to decline as well, which bodes well for eventually reducing U.S. inventories.
Source: Lancaster Farming