1. The Updated Margin Protection Plan–2018
Mark Stephenson, Ph.D.
Director of Dairy Policy Analysis

2. What Did Congress Change?
Changes were made in the Bipartisan Budget Act of and not through the more normal Farm Bill legislation.
Tier 1 volume is increased from 4 million pounds of annual covered production to 5 million pounds.
Indemnity calculations are no longer based on two- month average values, but will be calculated monthly.
The cost of Tier 1 premiums are greatly reduced.

3. Premium Structure Old Premium New Premium Level <= 4 mill
$4.00 $ $
$4.50 $ $
$5.00 $ $
$5.50 $ $ $
$6.00 $ $ $
$6.50 $ $
$7.00 $ $ $
$7.50 $ $ $
$8.00 $ $ $

4. FSA Implementation Rules
Producers enrolled for 2018 and who bought up coverage will be refunded premium payments and allowed to re-enroll.
Producers who dropped MPP coverage and have active LGM coverage are ineligible for any months covered.
For example, if you have an active LGM contract for January through March, you cannot get MPP coverage for those months, but you can get MPP coverage for subsequent months.
Your premiums will be based on months covered.
Certain farms can have $100 fee waived.
Limited resource, beginning, veteran, disadvantaged

5. FSA Implementation Rules
MPP coverage is retroactive to cover all months in 2018— including months with known margins (January and February so far)
New MPP signup will be from April 9 through June 1, 2018.
By June 1, we will know MPP margins from January through April with certainty.
You can still elect the percent of your historic production between 25 and 90 percent
The coverage level you elect is the same for Tier 1 and Tier 2 milk
Based on your historic production plus “bumps”

6. Expected 2018 MPP Margin

7. Expected 2018 Benefit
This is about 41¢ per cwt net benefit at $8 level on covered milk.

8. Probability of Net Benefit in 2018

9. Suppose You have LGM Month Margin Indemnity Jan-18 $ 8.1100 $ - Feb-18$ $
Feb-18 $ $
Mar-18 $ $
Apr-18 $ $
May-18 $ $
Jun-18 $ $
Jul-18 $ $
Aug-18 $ $
Sep-18 $
Oct-18 $
Nov-18 $
Dec-18 $
Start with last indemnity and work backwards
With August expected payment you have covered 3¢ of 14.2¢ premium.
With July & August, you have covered 12.5¢.
With June, July & Aug, you have 25¢.
If your LGM is done in May, then enroll.
Remember, you won’t be charged the premium for the full year, only the months for which your MPP contract is active. So, $ $ $0.15 = $1.76 Since you would be enrolled from June through December, or 7 months, you will pay the 14.2¢ for 7/12 of your historic production and you will receive the $1.76 on 7/12 of your historic production.

10. Suppose Your Production History is Above 5 Million Pounds
Get as close to 5 million pounds covered
Eg: PH is 12.5 million pounds, choose 40% to get to 5 million pounds covered
If your PH is > 20 million, then you will be buying some Tier 2 protection.
Eg., 25 25% = 6.25 million $8.00
5 million at Tier 1 & 1.25 million at Tier 2
Net benefit = $10,572 or 17¢ per cwt on covered milk
This strategy will work this year for less than 30 million pounds of production history (about 1,200 cows). Beyond that, your premiums will cost more than the expected indemnities.

11. Updated MPP Decision Tool

12. Updated MPP Decision Tool

13. Updated MPP Decision Tool

14. Updated MPP Decision Tool

15. Updated MPP Decision Tool

16. Updated MPP Decision Tool

17. Updated MPP Decision Tool

18. Live Demo of Decision Tool
You can access the tool at: Or

19. What’s Ahead? 2018 Farm Bill is underway
House Ag Committee has reported their version out
Hasn’t come up to the floor yet
Could be put on the floor by May 9th if there are the votes
Otherwise, will be late in the year after recess
When it does, there could be changes
Then goes to Senate where there will almost certainly be changes

20. What Do We Know?
Renamed to “Dairy Risk Management Program for Dairy Farmers”
Reduces Tier 1 premiums even further (E.g. $8 coverage for Tier I under this bill would be $0.09)
Establishes new buy up levels for $8.50 and $9.00 for Tier I production, with low premium rates.  (E.g. $9 coverage for Tier I under this bill would be $0.17)
No changes to premiums for production enrolled above 5 million lbs, but it does get rid of the requirement that you have to enroll a minimum of 25 percent of your production
Reverts back to using $4 as the catastrophic coverage level, instead of $5.

21. What Do We Know? Requires Secretary to do a feed cost study
Requires the Secretary to submit to Congress "a report…(looking at)… the difference between the feed cost of corn silage and the feed cost of corn."
requires USDA to use high quality alfalfa hay in the feed calculation
requires participating farmers to lock in their coverage level and percentage for the full life of the farm bill
Allows producers to participate in both the Dairy Risk Management Program and LGM-dairy at the same time, but not with the same milk

22. What Do I Expect? We won’t get a Farm Bill until after elections
Probably an extension until the first week in January and then frantic need to get it passed
Congress has been spending money like a sailor on shore leave
CBO may score the House markup as too expensive— especially for the Senate
May need to lose the $9.00 and perhaps the $8.50 coverage levels and question the further premium reductions
We will need to re-enroll in December

23. What Would I Do This Year?
By Friday, April 27, we will know with certainty what the margins for the first 3 months are.
At that time, we will know that we can already more than cover the Tier 1 premiums and fee at the $8.00 level.
Don’t bother with anything less than $8.00 — you’ll spend an additional 5.5¢ for an additional 50¢ of coverage.
Adjust your coverage percent to get as close to 5 million pounds as you can.
Get to your FSA office and signup whenever it is convenient but be sure to get there before June 1.