So far this year the USDA’s the Dairy Margin Protection Program has paid more than $250 million to dairy farmers. That is more than the last three years combined.
Driven by improvements made by congress in the Bipartisan Budget Act of 2018 and USDA’s efforts to inform dairy farmers about the enhanced program, as of early July more than 21,000 dairy farm operations had enrolled in the Dairy Margin Protection Program for the 2018 coverage year. More are still putting the final touches on their enrollment applications. Once final enrollment is tallied, more than 50 percent of the licensed dairy operations in the U.S. will be participating. These farmers purchased MPP coverage on 131 billion pounds of milk, representing approximately 60 percent of the U.S. milk supply.
Undersecretary for Farm Production Conservation Bill Northey says the program is still available for farmers through the end of the year even after the 2014 Farm Bill has expired. “We will continue to evaluate whether the margins are such in the dairy business that we end up needing payments through the end of the year.”
The total number of dairy farms enrolled in MPP for 2018 was up nearly 1,000 farms, or 5 percent, from 2017 enrollment levels. However, while farm enrollment was up over prior-year levels, the amount of covered milk was down 14 billion pounds. The decline in covered milk is likely due to farmers opting to purchase protection as close to 5 million pounds as possible — the average volume of covered milk per farm is slightly higher than 6 million pounds. More important than enrollment levels, however, is how farmers are using the program to protect against the risk of margin declines.
In 2016 and 2017, fewer than 25 percent of participating dairy operations elected buy-up coverage above the catastrophic $4 per hundredweight coverage level. This year, 95 percent of the enrolled dairy operations elected buy-up coverage and many of those farms elected the highest coverage level — $8 per hundredweight. USDA’s flexibility in allowing farmers to finalize coverage options until June 22 contributed to the upturn in buy-up coverage participation.
Figure 1 highlights historical MPP enrollment and buy-up participation rates.
World Outlook Board Chairmen Seth Meyer says margins between milk prices and feed costs are expected to stay above $8 for the rest of the year and should not trigger more payments. “The whey and even the butter market in the near term are providing some product price support. We reduced cheese prices a little bit, we’ve got large stocks of cheese overhanging the market. At the end of the day, what you end up with is also mixed class milk prices.”
USDA’s October outlook report is projecting increased milk production and supplies but left the all milk price generally unchanged.
Not only will MPP continue to make payments in the coming months, but both the House and Senate farm bills include further improvements to the recently enhanced MPP. The conferenced version of MPP is certain to be an improvement over the original program design. Thus, passing a farm bill on-time is critical to ensure the additional MPP enhancements are in place before the 2019 sign-up.
In addition to the farm bill changes in the dairy title, the Farm Bureau-developed Dairy Revenue Protection insurance product is expected to be available in the coming months, providing dairy farmers another tool in the risk management toolbox. Combined, the enhanced MPP, Dairy Revenue Protection and other risk management tools will provide a much more robust set of risk management tools for dairy farmers going forward.
In addition to these new and retooled dairy safety net programs, USDA also recently announced plans to provide $12 billion in assistance to farmers impacted by trade disruptions. The three-part plan includes a Market Facilitation Program to assist producers through payments to address the impact of tariffs, a Food Purchase and Distribution Program to buy and distribute perishable commodities and a Trade Promotion Program to aid producers in finding new markets for U.S. agricultural exports. The $12 billion package of agricultural assistance announced by the administration will provide temporary relief to dairy farmers who are on the front lines of recent trade disputes.