FSA Gearing Up to Run Dairy Margin Coverage

Annie AcMoody, Economist

Annie AcMoody, Economist, Western United Dairymen

The Dairy Market Coverage (DMC) is a voluntary risk management program for dairy producers authorized in the 2018 Farm Bill. It replaces the Margin Protection Program authorized in the previous Farm Bill. The concept is very similar: when the difference between the all milk price and the average feed cost (margin) falls below a certain dollar amount selected by the producer, a payment is issued. But don’t let the similarities turn you off entirely—there are some changes that could make this program beneficial for your operation so it’s worth taking a look. Sign-ups will start at your local Farm Service Agency office on June 17, 2019.

One interesting feature of this year’s program that may appeal to those who paid significant premiums under MPP between 2014 and 2017 and never got a penny in return (or got some, but not enough to cover costs), is that the 2018 Farm Bill allows a repayment. The amount will equal premiums paid above the amount of any indemnity received. Producers will have a choice of receiving 50% of that amount or they can get 75% of the amount if they want to use it toward the DMC premiums. So if you are still bitter about MPP, this may not fix the past few years, but you can at least get some money back.

 

 

The second major difference is that the maximum level of margin covered is increased from $8/ cwt to $9.50/cwt for a similar premium. Unfortunately, this increase is only applicable to annual production covered under 5 million pounds (for the full list of premiums, see the table on page 3). Still, with the new rules, you will be able to sign up 5 million pounds at the higher $9.50/cwt coverage if you so choose and sign up the rest or part of the rest of your production at another level of your liking. The minimum sign-up requirement of 25% of your production history is removed. This is big for large herds who wouldn’t be able to make the numbers work otherwise.

We already know there will be a payment for January and February ($7.99 calculated margin and $8.22 calculated margin, respectively). This means a payment of $1.51 and $1.28/cwt respectively for those two months if you had signed up at $9.50/cwt. To take the specific example of someone signing up 5 million pounds, the annual premium for $9.50/cwt would cost $7,500. With those two months only, payments already total $11,000. Payments are also expected in March and April when FSA releases the official number. While this program is geared toward smaller herds, at least California may be able to get some dollars out of this program for a change.

 

 

USDA released a calculator tool (fsa.usda.gov/dmc-tool ) that shows premium costs based on your production history and expected payments looking at the rest of 2019. This tool shows the expected payments, but I can also break it down by what is guaranteed payment vs expected to help you make a more informed decision, especially if your production history is over 5 million pounds. The government’s lack of speed in implementing this has been frustrating but being able to sign up retroactively helps dairy producers make more informed decisions that are relevant to the current difficult pricing environment.

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