As policy makers edge closer to releasing rules for the new Margin Protection Program (MPP) for dairy producers, introduced in the new farm bill, many questions still remain.

Jennifer Janak

In a webinar provided by Farm Credit East in June, Andrew M. Novaković of Cornell University and John Newton of the University of Illinois discussed reasons for choosing MPP as an insurance plan, even though all the program’s details will not be available until Sept. 1.

Novaković admitted it’s a challenge to decide now if MPP is the best option for a dairy farm when the USDA has not yet released specified details about the program. 
 Upon the rules being made public, Novaković believes the program should allow producers at least two weeks to understand its details before they would have to sign up for the program.

“Sept. 1 is an important date to note,” Novaković said. “Staying up-to-date with the latest USDA decisions will ensure that you are able to sign up for the program in a timely manner.”

With the current timeline, the potential enrollment period may occur around harvest season.

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Both Newton and Novaković agree that while the enrollment period – both its start date and duration – has not yet been set, it will likely be long enough for dairy producers to thoughtfully make the right decision about MPP enrollment despite falling during a hectic time of year.

Similar to the existing, but limited, Livestock Gross Margin for Dairy (LGM-Dairy) insurance program, this new risk management tool has been created to alleviate stress for all U.S. farms during periods of financial difficulty. In short, it protects farm income over feed cost margins as determined by the USDA on a bimonthly basis.

Throughout the webinar, Novaković and Newton shed light on the questions about the new program that continue to linger in dairymen’s minds across the country.

“What we do know are the basics of what the program entails,” Newton said during the webinar. “What we don’t know are the specific details.”

What we do know:

  • MPP provides a framework to protect margins from $4 to $8 per hundredweight.
  • An administration fee of $100 will be required at the time of enrollment.
  • MPP does not guarantee a profit or minimum income for dairy producers.

What we don’t know:

  • When the enrollment deadline and coverage start date will be
  • Whether producers will have the ability to decide on participation on an annual or five-year basis
  • How premiums will be calculated

Two potential strategies that dairy producers should consider are the “passive MPP strategy” and “dynamic MPP decision,” Newton said. The passive strategy locks in coverage for the life of the five-year farm bill, while the latter allows producers to change coverage levels on an annual basis.

“Passive MPP strategy is great for smaller dairies,” Newton said. “Larger dairies should consider the dynamic MPP decision in order to improve the performance of MPP and to avoid net income over feed cost losses.”

With nine coverage levels and 14 coverage percentage options, a total of 126 different coverage combinations are available for dairy producers through MPP. The University of Illinois provides an interactive tool on their website, called the MPP-Dairy Dashboard, for producers to use and decide what coverage option and strategy is best for their current farm operation.

Premium rates for the MPP have been fixed for the five-year life of the farm bill. However, there is still uncertainty about how premiums will be determined based on each individual producer’s coverage plan.

The following questions remain:

  • Will producers be able to move freely among margin coverage levels from year to year?
  • How will the 4-million-pound cut point for lower margin insurance rates, as stated in the bill, be applied to actual policies issued? Will it be calculated based on a farm's production history or its base? Or will it be prorated on how many pounds a farm enrolls in the program?

Novaković said those latter two questions might seem like the same thing but that it may make "a fair bit of difference" to farms with 500 to 900 cows. For example, if a farm with 8 million pounds of production were to cover 50 percent of its milk with the new program (a total of 4 million pounds of production), preliminary USDA indications are that the farm might pay a lower premium for insurance on only the first 2 million pounds of production because the farm was only insuring half of its eligible production base.

“All of this is as clear as mud,” Novaković said.

Until the Farm Service Agency releases the final rules, it will also not be clear whether or not dairy producers who choose to enroll in MPP will have to participate in the program for five years or if they can opt-in annually.

The question also remains of whether a producer can alternate between participating in MPP or LGM-Dairy annually.

For example, if participation were determined to be an annual choice, then producers would have the option to utilize MPP when the markets predict greater risks for low margins. Likewise, they could choose to switch from year to year to LGM-Dairy when the markets predict less risk for low margins.

“Dairy producers need to weigh their options even though we do not yet have a clear answer on the parameters of MPP and LGM-Dairy being used interchangeably,” Novaković said.

Newton added that producers should not wait until the last minute to decide whether or not MPP is the right tool for them. He urges all dairymen to become informed of the rules and unanswered questions that may pertain to them in the coming months. PD