Dairy farmer participation in the federal dairy income safety net program, the Margin Protection Program for Dairy (MPP-Dairy), continues to slide, based on 2017 enrollment data released by USDA’s Farm Service Agency (FSA).
John Newton, director of the American Farm Bureau Federation (AFBF) Market Intelligence, analyzed 2017 MPP-Dairy enrollment data released by FSA on May 26, highlighting national and state-level participation.
20,314 herds enrolled
For the 2017 calendar year, 20,314 dairy operations enrolled in MPP-Dairy, about 49 percent of the 41,809 licensed dairy operations reported by USDA in 2016.
Once enrolled, a dairy farmer may not exit the program for the life of the 2014 Farm Bill, which expires at the end of 2018. However, herds enrolled during 2017 are down 5,349 from 2016, a decline of 21 percent. According to Newton, the decline is likely due to farms that had yet to make a coverage election as of May 19, when the data was compiled, or dairy farm operations that had gone out of business.
View milk production enrolled in MPP stats.
A vast majority of the operations enrolled for 2017 are at the catastrophic $4 per hundredweight (cwt) coverage level. Only 1,507 operations, approximately 7 percent of enrolled operations, elected to purchase coverage above $4 per cwt. Coverage at buy-up levels is down from 2015 and 2016, when 56 percent and 23 percent of the farms had coverage above $4.50 per cwt, respectively.
64 percent of milk covered
Milk volume covered under MPP-Dairy at any level is about 138 billion pounds, 64 percent of estimated U.S. milk production in 2017. Milk covered in 2017 is down 13 percent from 2016, when 159 billion pounds of milk was enrolled.
Nearly all milk enrolled in the 2017 coverage year is at the catastrophic ($4 per cwt) coverage level only. Buy-up enrollment for 2017 is at the lowest level since the program was introduced. Approximately 2 percent of the milk is at buy-up coverage levels of $4.50 per cwt and above.
This total is down from 2015 and 2016, when 38 percent and 12 percent of the milk was enrolled at buy-up coverage levels, respectively. Of the 3.1 billion pounds of milk with buy-up coverage, 62 percent is enrolled at the $6 or $6.50 per cwt coverage levels.
State and regional enrollment
Newton provided a breakdown of individual state and regional data:
• In California, 973 producers covered about 31 billion pounds of milk. All but one producer covered production at the $4 per cwt level.
• In Wisconsin, 5,260 producers covered about 19 billion pounds of milk. Of those, 4,777 (91 percent) selected the catastrophic coverage, with another 391 selecting coverage at $6-$6.50 per cwt levels.
• The top five states in terms of milk volume covered under MPP-Dairy in 2017 are California, Wisconsin, Idaho, New York and Texas. At an operation level, the top five states are Wisconsin, Minnesota, New York, Pennsylvania and California, representing 60 percent of the enrolled dairy operations.
• Operations electing buy-up coverage and protecting a higher percentage of milk were concentrated in the Upper Midwest and Corn Belt.
Decline expected
The decline in 2017 MPP-Dairy enrollment – which closed last December – was anticipated for a variety of reasons, including the combination of a more favorable outlook in dairy markets and the program’s poor actuarial performance, said Newton.
First, the risk of a large increase in feed costs was low due to higher feed inventory levels in the U.S. and abroad. With feed prices expected to remain low, and improving milk prices, the likelihood of MPP-Dairy making payments in 2017 was low. As of late May, USDA’s MPP decision tool placed a 1 percent probability on the MPP-Dairy margin falling below $8 per cwt during 2017.
Second, MPP-Dairy has not met the expectations of dairy producers. While milk prices have declined since 2014, the lower feed prices meant the MPP-Dairy margin did not fall substantially. MPP-Dairy made some payments in the spring of 2015 and 2016, but those payments did not surpass the premiums and administrative fees paid by farmers. For the 2015 and 2016 coverage years, AFBF estimates dairy farmers paid approximately $100 million in premiums and administrative fees, and received $12 million in program payments.
Changes coming in 2018 Farm Bill?
The MPP-Dairy enrollment period for 2018 coverage is scheduled to open in July. Beyond that, the future of MPP-Dairy and structural adjustments recommended for the 2018 Farm Bill have been the topic of numerous congressional hearings already this year.
Darrin Siemen, a fourth-generation dairy farmer from Harbor Beach, Michigan, told a Senate Agriculture Committee field hearing in early May that MPP-Dairy, “has failed to deliver the protection farmers need and expect. While MPP remains the right model for the future of our industry, changes are needed if Congress wants to prevent dairy farmers like me from going out of business,” he said.
Included among recommendations put forth by the National Milk Producers Federation are the following: restoring the MPP-Dairy feed cost formula to its original form; directing USDA to obtain more precise feed cost data to more accurately reflect true costs and margins; improving program participation affordability by reducing supplemental premium costs for operations producing 4 million pounds of milk or less per year; and calculating margins on a monthly basis rather than six times per year.
AFBF is working to make MPP-Dairy changes to provide producers more flexibility and better coverage, Newton said. In addition, AFBF’s Insurance Services division has been working on a new insurance product, Dairy Revenue Protection, which if approved, would be similar to the Livestock Gross Margin for Dairy (LGM-Dairy) program offered through USDA’s Risk Management Agency and sold by crop insurance providers.
Projected future federal spending for dairy falls short of programs for other commodities, according to the Michigan Farm Bureau. The Congressional Budget Office’s (CBO) most recent baseline projected annual farm-level cash receipts in the dairy sector at about $39 billion — behind only the value of corn and soybeans.
While CBO estimated the farm value of milk production between 2018-2027 at $389 billion, it projects federal outlays in dairy during the same period will total $749 million. The ratio of outlays to the farm value of milk production is less than one-quarter of one percent. That compares to 4 percent for corn, 2 percent for cotton; 26 percent for peanuts; 1 percent for soybeans and 12 percent for wheat.
Read also:
MPP-Dairy still a safety net formula, with adjustments
What’s in it for you? Dairy producer, processor groups outline policy priorities
MPP-Dairy scrutinized during House ag committee hearing
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