Do they re-enroll in the Margin Protection Program for Dairy or part ways with the program so they can consider the Livestock Gross Margin insurance program for dairy?
Or do they opt for another risk management tool or simply try to ride out the market roller coaster?
Alan Zepp, risk management specialist for the Center for Dairy Excellence, and Cynthia Walters, dairy program specialist for the Farm Service Agency, discussed the options during last month’s Protecting Your Profits call.
Farmers have until Dec.15 to decide whether to enroll in the MPP program. Farmers who previously enrolled can opt out of MPP if they like.
U.S. Agriculture Secretary Sonny Perdue announced the option to opt-out of the MPP program earlier this year.
“Participants that want to continue coverage in 2018 will follow the same process they have always followed,” Walters said.
Those who want to take a pass do not have to fill out any paperwork to opt out, although they will still need to pay for 2017 coverage rates. Farmers with outstanding bills will be receiving letters this month.
“If they want to opt out of MPP-Dairy, they can sign up for LGM-Dairy the next sales period,” she said. “That would allow for a seamless transition between the insurances.”
Farmers cannot participate in LGM-Dairy and MPP at the same time.
The decision to allow farmers to opt out of MPP was lauded by dairy and farm groups, but Zepp said farmers should take time between now and Dec. 15 to think carefully about what risk management program would work best for their operations.
The markets are not providing many margins that will excite farmers, Zepp said. However, farmers do need to protect against a black swan event.
“No one wants to think about it, but it does exist,” he said. MPP was designed to protect against catastrophes.
LGM-Dairy has been providing better protection in 2017, but that could change in 2018.
Current LGM-Dairy policies could have some form of indemnity payment, and Zepp said farmers should check with their crop insurance agents at the completion of their policies.
Reviewing current market conditions, Zepp said the national dairy herd remains stable and USDA is indicating it might have peaked. However, although cow numbers may not climb, milk production continues to grow.
“The national milk herd averaged 70 pounds per cow per day in September,” Zepp said.
Pennsylvania’s dairy herd has shrunk, but the state’s milk production is still growing faster than the national average and now matches the level produced in 2001.
However, the average Pennsylvania milk cow produces only about 64 pounds of milk per day, less than the national average.
The major dairy countries have increased their dairy exports. U.S. dairy exports are competitive on the global market and remain stable.
U.S. butter, cheese and powder stocks remain high, and there has been some softening in prices. Stocks of skim milk powder in the European Union are the largest drag on the market.
The clock is ticking for the EU to move stocks out of storage. They have been in storage for about a year and their quality continues to decline.
“These governments are going to start releasing them soon or they will go bad,” Zepp said.
U.S. powder stocks are growing, but they are in commercial inventory, not government holdings.
The next Protecting Your Profits Call will be Nov. 15, a week early due to the Thanksgiving holiday.