Important dates to participate in either of two available federal dairy income margin insurance programs are approaching.
2018 MPP-Dairy deadline is June 1
Dairy producers have until June 1 to enroll in the Margin Protection Program for Dairy (MPP-Dairy) for 2018.
For those who are holding out until last minute before making their decision to enroll, the USDA’s Farm Service Agency (FSA) produced a fact sheet explaining changes to the program’s coverage levels and premiums, and offers an online MPP-Dairy Decision Tool to allow dairy producers to estimate potential costs and payments.
Even though MPP-Dairy margins are now expected to move above $8 per hundredweight (cwt) by July, the retroactive nature of the 2018 program guarantees indemnity payments on February-March milk production for producers who select margin coverage at the $7, $7.50 and $8 per cwt level. Based on futures prices as of May 21, producers covering margins at the $8 level are also assured indemnity payments for April and May (April MPP-Dairy margin will be announced on May 30; the May margin will be announced on June 28).
And, for those covering milk production and paying premiums at the Tier I level (5 million pounds or less), this spring’s indemnity payments will surpass premium costs for the entire year.
The USDA MPP-Dairy Decision Tool also lists probabilities of indemnity payments. As of May 21, the probability that producers insured at the $8 per cwt margin level would receive an indemnity payment was 100 percent for February-April, 99 percent in May and 61 percent in June.
Based on estimates as of May 21, 2018, a producer covering 90 percent (maximum allowable) of 5 million pounds of annual milk production could expect to pay $6,927 in premiums and administrative costs (due in September 2018), with expected indemnity payments totaling $21,138, for a net return of $14,211. Similarly, a producer covering the same milk volume at the $7.50 per cwt margin level would expect to pay $4,283 in premiums and administrative costs for the year, and receive indemnity payments totaling $11,022, for a net return of $6,739.
Based on current conditions, all other levels of margin coverage are at or below breakeven.
For additional analysis from John Newton, director of Market Intelligence with the American Farm Bureau Federation, read “For Some, New MPP Makes Plenty of Cents.”
Read also:
There’s still time to weigh dairy safety net options
MPP-Dairy 2018 enrollment open, April 9 through June 1
Premium, indemnity payments detailed
Cynthia Walters, program director with the Pennsylvania USDA Farm Service Agency (FSA), provided additional MPP-Dairy details regarding premium and indemnity payments.
While premiums aren’t due until Sept. 1, dairy farmers enrolling in the 2018 program can fill out an optional Form CCC-36, creating an assignment on indemnity payments to cover premium charges. Premiums will not be deducted unless that form is filed with the FSA office.
“A lot of people are doing that, only because [paying the premium] is one less thing for them to worry about,” she said.
Walters said FSA offices are in the final stages of installing payment software to handle indemnity checks, and she expects indemnity payments to go out to eligible producers quickly. Early to mid-June checks could cover February and March, and possibly April MPP-Dairy pay periods.
Thereafter, any monthly indemnity payments would go out shortly after the margins are calculated. MPP-Dairy margin calculations use National Ag Statistics Service price data, which is delayed one month. For example, May MPP-Dairy margins are calculated on June 28, so May indemnity payments could be expected in early July; June payments would be calculated at the end of July and paid in early August, and so on.
LGM-Dairy policies on sale, May 25
Alan Zepp, risk management program manager at Pennsylvania's Center for Dairy Excellence (CDE), reviewed various risk management options during his monthly “Protecting Your Profits” conference call, May 23.
At the time of the call, Chicago Mercantile Exchange (CME) Class III futures contracts for the remainder of 2018 averaged $16.31 per cwt, up about 40 cents per cwt from a month ago, but still well-below the five-year average of $17.42 per cwt. The Class IV futures projected average was $16 per cwt, $2 higher than recent months.
An October 2018 Class III futures contract was trading at $16.97 per cwt on May 22. A $17 per cwt at-the-money put cost 64 cents per cwt; a $16 put option, similar to a $1 deductible Livestock Gross Margin for Dairy (LGM-Dairy) policy, cost 24 cents per cwt.
With milk futures prices moving higher, insurable margins under LGM-Dairy may be becoming more attractive for larger dairy farmers who don’t qualify for MPP-Dairy Tier I premium rates. Held the last business Friday of each month, the next sales period for LGM-Dairy policies is May 25; the June sales period is June 29.
As of May 23, the LGM-Dairy insurable margin for the 10-month period covered by policies available on May 25 averaged $7.23 per cwt. Cost for coverage for the entire period was estimated at 58 cents per cwt for a $0 deductible policy; 16 cents for a $1 deductible policy.
Meanwhile, there’s been no news regarding the launch of a new program, Revenue Protection-Dairy (RP-Dairy), which received the green light from the Federal Crop Insurance Commission earlier this year. The American Farm Bureau Federation and American Farm Bureau Insurance Services developed the new insurance product for dairy farmers. Similar to crop revenue protection policies, Dairy-RP would protect against unexpected declines in milk prices, unexpected declines in milk production, or both.
Dairy economists have said the policies should be available this summer, but crop insurance providers have not yet received information to develop and sell RP-Dairy policies. 
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Dave Natzke
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- Progressive Dairyman
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