A Margin Protection Detail That May Matter to Larger Producers

Geoff Vanden Heuvel

Geoffrey Vanden Heuvel
Geoff Vanden Heuvel

In the Budget Bill that passed last week, some changes were made to the Margin Protection Program that dramatically lowered the premiums on margin protection coverage on the first 5 million pounds of annual production.

For example, the premium to obtain coverage when the income over feed cost, margin drops below $8 per cwt. is now $0.142 per cwt. for the first 5 million pounds of production. And Congress says you can still sign up for 2018.

Current projections are that the MPP margin will be below $8 for at least some part of this year, so it seems like a “no brainer” to sign up for this smoking good deal. BUT the way a producer has to sign-up for MPP is as a percentage of their annual production and the minimum percentage is 25%.

What that means is if you produce more than 20 million pounds per year on your dairy (about 850 cows), you have to buy more than 5 million pounds of coverage because the minimum coverage level is 25%. For every cwt. you purchase over 5 million pounds you have to pay $1.36 per cwt. That gets very expensive, very fast. This fact illustrates that to large producers, the value of the “buy up” portion of the MPP is very limited. The catastrophic portion of MPP, that is the essentially free Margin Protection coverage for all producers regardless of size at the $4 Income over Feed Cost margin does have value in the event of a major financial wreck. But the rest of the MPP is really an assistance program for smaller producers.

This reality should influence the discussions that will take place in the coming months on the farm bill. Maybe it is time to scrap the buy up portion of the MPP over 5 million pounds and spend those dollars on bringing up the catastrophic margin coverage for all producers. Maybe we can get that number to $5 per cwt. instead of the current $4. That would be a real safety net benefit for all producers.