Sometimes even a sure thing isn’t for everybody.
Only 36% of Pennsylvania dairy farmers have signed up for Dairy Margin Coverage, a new federal safety-net program that is all but guaranteed to make farmers money this year.
Pennsylvania dairy producers largely shied away from the program — which will pay the state’s participating farmers close to $24 million this year — despite the exhortations of government officials, Extension educators, ag lenders and dairy organizations.
USDA even extended the deadline, hoping that the last fence-sitters would decide to visit their Farm Service Agency office.
“Don’t leave this kind of financial assistance on the table,” Ag Undersecretary Bill Northey begged farmers.
But after the enrollment period finally closed on Sept. 27, fewer than 2,300 of Pennsylvania’s 6,200 dairies had taken the agency up on the offer.
That’s far behind the national participation rate, 61%, and the rates in other Northeastern and major dairy states.
Observers aren’t quite sure what to make of farmers’ reluctance about Dairy Margin Coverage, but they acknowledge that farmers had particular reason to be wary of this program.
That story begins with the 2014 Farm Bill, when Congress took dairy assistance in a new direction with the creation of the Margin Protection Program.
Under this plan, farmers got paid when the margin — the difference between the milk price and the average feed cost — fell below a dollar amount selected by the producer.
The concept was not necessarily bad, but the resulting program was, in the words of the National Milk Producers Federation, “an effort wounded out of the gate because of congressional budget compromises.”
Margin Protection paid farmers a pittance even as the dairy industry sank into the multiyear down cycle that persists today.
The program proved so unpopular that lawmakers restructured it at the beginning of 2018, rather than waiting for the new Farm Bill negotiations later that year.
The Farm Bill gave Congress the opportunity to overhaul the program even more, and the version that became law last December gave the program a new name and even more generous terms.
In its current reborn state, Dairy Margin Coverage is an “exceptionally good deal” for average-sized and small farms, said Andrew Novakovic, a Cornell University dairy economist, at a conference last month.
A farm’s first 5 million pounds of milk per year — the production of about 240 cows — qualifies for reduced-price premiums.
Coverage above that level quickly becomes uneconomical, but most Pennsylvania dairies are small enough to cover their entire production with the budget plans.
Also, USDA rolled out the program in mid-2019 but made coverage retroactive to January.
As a result, farmers had an unusually good idea of whether the payouts would exceed their premiums by the time they signed up.
The answer, in most cases, was yes.
Farmers who enrolled less than 5 million pounds are pretty much guaranteed to make a profit from the program this year, said Zach Myers, risk education manager at the Center for Dairy Excellence.
In fact, dairy producers who chose the higher coverage levels could get payments for every month from at least January to July, according to USDA.
“For many smaller dairies, the choice is probably a no-brainer,” Ag Secretary Sonny Perdue said in June.
That assumes farmers, in Pennsylvania and around the country, could look past the Margin Protection flop.
Tom Litkea, a dairy farmer in central Wisconsin, was still bitter when Dairy Margin Coverage rolled out.
“It’s just a slap in the face that we get nothing for our work,” he told his local TV news station in June. “We’ve lost thousands, and we get a hundred back.”
To be sure, Dairy Margin Coverage is not dairy farmers’ only option.
From crop insurance agents, farmers can buy policies in two USDA-approved programs, Dairy Revenue Protection and Livestock Gross Margin Insurance.
Large dairies might want to enroll their first 5 million pounds of milk in Dairy Margin Coverage and cover the rest with Dairy Revenue Protection, Myers said.
But in recent surveys, the Center for Dairy Excellence has found that many Pennsylvania dairy farms don’t use any of these risk-management tools.
The surveys provided less insight on why farmers are keeping away.
“I wish I did (know), so I knew how to address it,” Myers said.
Church and State
While Dairy Margin Coverage sign-ups were particularly soft in Pennsylvania, John Newton thinks even the 61% nationwide participation could be higher.
“There are some people that are fundamentally or religiously against getting those direct payments,” Newton, an American Farm Bureau Federation economist, said at a forum this week in Washington, D.C.
Some of those religious objections likely come from Pennsylvania, which has the nation’s largest population of Amish people.
The Amish, like Old Order Mennonites and related groups, generally avoid federal safety-net programs.
While Plain Sect farmers are likely one reason participation in the dairy program is low, it’s hard to say how big of a dent they make, said Steve Nolt, senior scholar at Elizabethtown College’s Young Center for Anabaptist and Pietist Studies.
While Plain people have a strong farming tradition, only about a third of households in the largest settlement — in Lancaster and southwestern Chester counties — are still farming.
And among those who are, not all of them are dairy farmers, Nolt said.
The states with the second and third largest Amish populations, Ohio and Indiana, also have low Dairy Margin Coverage participation.
But in Indiana at least, religion is likely a minor factor in the scant enrollment. Just one-tenth of the households in the state’s two largest Amish settlements are farming, Nolt said.
The sign-up data does offer some hope to risk-management advocates.
More Pennsylvania farms took Dairy Margin Coverage than joined the Margin Protection Program, and the enrolled production volume increased by 1 billion pounds, to 6 billion.
It also helps to recognize that Pennsylvania has the second most dairy farms in the country.
Pennsylvania actually ranks fourth in the number of dairies enrolled in Dairy Margin Coverage — even though those farms account for just one-third of the state’s operations.
One of those enrollees, Sally Kolb, sees the program as a way to keep paying the bills when prices fall.
“I think that this is something that can really help,” said Kolb, who farms in East Coventry Township, Chester County.
Kolb was previously enrolled in the Margin Protection Program. She never got much money from it, but with much of her revenue coming from the farm’s retail store, she figured she was better able to withstand market fluctuations than most dairy farmers.
Still, Kolb likes that the new program responds more quickly to low prices, giving farmers a better chance at getting paid.
She has seen farmers complain on social media that their Dairy Margin payments have been slow, but she said her funding has come through on time.
Kolb sits on her county Farm Service Agency board, so she might be more keyed in to risk management options than other farmers.
But now is the time for all of her peers to decide whether to participate in Dairy Margin Coverage next year.
The 2020 enrollment period opened in early October and ends Dec. 13.
Payments are not certain for 2020, but Myers, of the Center for Dairy Excellence, still recommends that farmers consider signing up, even for the highest coverage level.
Others are bullish too.
“The DMC program doesn’t replace a healthy market, but it is a crucial safety net in turbulent times,” said Jim Mulhern, president of the National Milk Producers Federation.
Still, for many farmers, that coverage decision may not be clear-cut, and will likely be influenced by their attitudes as much as their financial calculations.