3/22/2014 7:00 AM
By Paul Post New York Correspondent
SARATOGA SPRINGS, N.Y. — The recently adopted Farm Bill affects all aspects of the nation's agriculture industry.
Mark Stephenson of the University of Wisconsin, explained what it entails for dairy farmers during a recent webinar hosted by Farm Credit East entitled, "Dairy Provisions of the Agriculture Act of 2014: What Dairy Producers Need to Know."
The new Farm Bill replaces the old MILC program with a new Margin Protection Plan. The new program is not complex, but there might be annual decisions that producers have to make that would impact their net income.
Stephenson described what's known about the program and what implementation rules the Farm Service Agency still needs to decide.
Margin is the market value of milk minus feed costs.
"This is a national measure of dairy farm well-being," he said.
First, all farmers must decide whether to enroll in the new Margin Protection Plan, or MPP, or the existing Livestock Gross Margin for Dairy Cattle, or LGM-Dairy, program.
"You can't do both," Stephenson said. "The MPP is an insurance product. You pay a premium and receive an indemnity payment if due."
However, it's unknown whether farmers will get to decide annually which program they prefer, or if it’s a one-time decision.
The MPP program should be implemented by Sept. 1.
"A lot of the details still aren't known," Stephenson said. "The FSA has an awful lot to get done. We don't know the sign-up deadline."
Several other questions still need to be answered. For example, it's uncertain if indemnities will be based on production history, or the lower between production history and actual production.
The level of flexibility is also unclear, and if new dairies will be allowed to enroll based on estimated production.
A USDA website says the LGM-Dairy program has two distinct advantages:
Convenience: Producers can sign up for LGM 12 times per year and insure all their milk production they expect to market over a rolling 11-month insurance period. The producer does not have to decide on the mix of options to purchase, the strike price of the options or the date of entry.
Customization: The LGM policy can be tailored to any size farm. Options cover fixed amounts of commodities, and those amounts may be too large to be used in the risk management portfolio of some farms.
But Stephenson said the MPP program "does seem simpler."
"The premiums for LGM-Dairy move when futures market prices are moving," he said.
Stephenson said he believes the MPP "is going to work reasonably well for most people." However, he stopped short of recommending one program over another, saying there's been no firm analysis yet.
"We're working on it," he said. "We're still trying to probe this beast and tell what it has to show us. Every farm is different."
Like the MILC program, there will likely be some conservation requirements associated with MPP.
"If this program becomes very costly for the taxpayer, it could be on the radar for Congress when we get to the next Farm Bill," Stephenson said. "
However, that's at least four years away.
He said the upcoming year looks like a good one for dairy producers.
"We aren't actually clueless about the year ahead," he said. "Futures markets tell what prices will be, which allows us to predict margin. This is a very good year for us. Margin values are not expected to decline. Margins are expected to be good."
In addition to MILC, the new Farm Bill eliminated two other programs — the Dairy Export Incentive program and the Dairy Product Price Support program.
Another new program is the Dairy Product Donation program. This would only go into effect when extremely low margins exist — below $4 per hundredweight.
If that occurs, the government would buy milk at prevailing prices and give it to public and private nonprofits for distribution to low-income people.
The Farm Bill also keeps some existing things intact including LGM-Dairy. It also extends the dairy forward pricing program.
The webinar is available online at www.farmcrediteast.com