With the end of the registration period for the Margin Protection Program–Dairy (MPP-Dairy), scheduled for Sept. 30, drawing near, it is a good time to take a look dairy risk management options for 2016, according to the Northwest New York Dairy, Livestock and Field Crops Team in cooperation with Cornell Cooperative Extension of Wyoming County (CCE).
The USDA Risk Management Agency recently announced the allocation of additional funds to the Livestock Gross Margin-Dairy (LGM-Dairy) Insurance Program for the remainder of the 2015 fiscal year. With forecasts for continued low milk prices and rising feed price predictions, dairy margins, predicted by the futures markets, are projected to remain thin at least through the first half of 2016. However, both public and private tools remain available.
The public tools are the USDA’s MPP-Dairy, available through USDA Farm Service Agency, and LGM-Dairy, purchased from crop insurance agents. On the private side, advance contracts with handlers and cooperatives, and the futures and options markets, continue to be available. In today’s volatile price environment, looking ahead and putting together a strategy for "selling" your milk and "buying" your feed is not to be overlooked.
The USDA Risk Management Agency announced that an $1 million has been shifted from other livestock margin insurance programs to the dairy program in July. This will allow dairy producers to take advantage of premium subsidies on this insurance product. It is important to note that any farm who has participated in MPP-Dairy must continue to participate in that program through 2018. LGM-Dairy is only available to farms who have never participated in MPP-Dairy. LGM-Dairy is offered for sale on the last business Friday of each month and must be purchased before 8 p.m. Central Standard Time (9 p.m. EST) the next day.
The 2016 registration period for MPP-Dairy is slated to close on Sept. 30. Producers who participated in 2015 will automatically be registered at the Catastrophic Coverage Level of $4 per hundredweight, with a registration fee of $100 regardless of their 2015 coverage level. If participation above the Catastrophic level is desired, the producer must elect that coverage level before the September deadline. Additionally, producers who participated in 2015 will have their historical production level increased by 2.61 percent for 2016.
The Dairy Markets and Policy web site tools continue to be available at: http://dairymarkets.org/MPP/. In addition to the MPP forecasting and LGM tools that were available in 2015, a new advanced MPP tool is available. It allows producers to enter their own prices and adjust them for milk and feed, yielding a rough estimate of their own Income Over Feed Cost. It is important to note that even though a producer can use their own prices, the advanced tool still uses the national formula for blending corn, meal, and hay to arrive at a margin.
The first aspect of the advance tool is the ability of producers to enter their own prices. Secondly, the advanced tool allows the user to adjust milk, corn, soybean meal, and hay prices separately. This enables farmers to learn how a change in just one price aspect will affect their projected income over feed costs.
The third aspect of the advance tool, the stress test, allows producers to enter some descriptor information about their operation, including both physical and financial data, and get some approximations on measures of profitability, liquidity and solvency.
“The concept of the stress test tool is that each farm can explore to what extent MMP can help them financially given their particular financial condition,” said Dairy Policy and Markets team member Dr. Andrew Novakovic at Cornell University. “It gives outputs that show how much your liquidity position, say, would be helped (or hurt) if you bought different levels of MPP.”
For more information call CCE at (585) 786-2251.