Dairy farmers in Michigan and across the country have an enhanced tool to provide risk management on their farms.
With the signing of the 2018 Farm Bill, dairy farmers got an enhancement to the former Margin Protection Program (MPP) through the creation of the Dairy Margin Coverage (DMC) program. The new DMC program has several improvements that help make it more useful to almost all dairy farmers in Michigan.
DMC is a voluntary program that makes payments when the national average income-over-feed-cost margin falls below a farmer selected coverage level. It is one of the risk management tools that farmers can use, in a market that can have a lot of volatility.
The new DMC program features lower premium cost for all milk covered in Tier 1 (under 5 million lbs.). Five million lbs. is equivalent to a farm of 200 milking cows producing 25,000 lbs. of milk per cow/year. Currently, Michigan is ranked No. 1 in the nation in production per cow at 26,340 lbs. per cow/year (2018).
Farms can now also cover anywhere from 5 percent to 95 percent of their production. This means that larger farms can at least cover some of their milk production at Tier 1 prices.
Farms can now select a coverage margin level of up to $9.50 per hundredweight (cwt.) of milk for Tier 1 production. Coverage margin level choices remain at $4-$8 for Tier 2 coverage.
If farmers sign up for the full five years of the 2018 Farm Bill, they can receive a reduced premium cost. For example, a coverage margin level of $9.50 (Tier 1) has a premium cost of $.15 cwt/year if the farmer wants to be able to change coverage choices each year, but is $.11 cwt/year if they sign up for all five years (5-year discount).
What does all this mean for Michigan dairy farms?
The DMC program allows them to cover a bigger margin between milk price and feed cost, for a cheaper rate when compared to the old MPP. This is especially important to Michigan dairy farmers because they have been impacted by the current low milk prices to a larger degree than other dairy producing states. Because of a current imbalance in production vs. processing capacity in Michigan, dairy farmers here are often receiving more than $1 less per hundredweight. than other states. Causes for this disparity include the increased cost of hauling milk out of the state, and having to sell the milk at a discount in order to find a home for it.
New processing capacity is coming on-line and more is being planned, but these projects take years to accomplish. In the meantime, Michigan led the nation in the percentage of dairy farms that went out of business, from 2017 to 2018, at 13.1 percent (230 farms).
Decisions producers need to make:
There are three decisions that dairy farmers will need to make: 1. What margin to cover, 2. What percentage of their historical production level to cover, and 3. Whether to sign up for one year or the full five years of the 2018 Farm Bill.
Two key upcoming dates are:
n June 17 — DMC signup scheduled to begin and will stay open until September 20th.
n July 8 —DMC payments scheduled to begin, retroactive to Jan. 1.
Dairy farmers are encouraged to contact their local USDA Farm Service Agency office before the signup start date as they may be eligible to receive a partial refund of MPP premiums pursuant to a farm-bill provision allowing the payback. Producers should visit their local USDA FSA office to discuss any refunds they may be due, and their options in receiving those refunds.
Dairy farmers may also want to view a recent webinar produced by Michigan State University Extension, featuring Dr. Christopher Wolf, Professor — Agricultural, Food and Resource Economics Michigan State University, and Roger Betz ande Stan Moore of MSU Extension. The webinar can be accessed through the MSU Extension Farm Management Team’s webpage, or by going to http://bit.ly/MSUEDMC.
Although the Dairy Margin Coverage program will not solve our current low-price crisis in dairy, it can provide meaningful help to our Michigan dairy farmers. Using the DMC program, along with other risk management tools, can help dairy farmers manage risk on their farms.
Stan Moore is a Michigan State University Extension senior extension educator.