The net effect of this is that the dairy baseline could shrink even further by the time new projections are made in 2017. “Continued participation at lower coverage options would lower projected outlays and make it even more difficult to improve MPP,” says Newton.
Another option being widely discussed is to regionalize margins. Dairy farmers in the West complain USDA’s milk-feed margin doesn’t reflect their cost structure. But the National Milk Producers Federation, in its Foundation for the Future plan that conceived the MPP program, wanted to avoid regional conflict and opted instead for a national plan.
The AFBF’s analysis clearly shows regional differences. California, New Mexico and Arizona are all more than $2 below the national average margin. States in the Deep South, from Virginia to Florida and from Tennessee to Mississippi, are all $2 above the national average margin. States in the nation’s more traditional dairy areas are typically 50¢ to $1.50 higher than the national average margin. Clearly, there will be winners and losers if regional feed and milk prices are used.
According to the AFBF analysis, adjusting for feed only would have increased MPP payments from $730,000 in 2015 to $2 million, and increased payments from about $11.2 million to about $25 million through June 2016.
But a more fair way to calculate margins, using both regional feed and milk prices, would have increased MPP payments by $49 million in 2015 and $30 million through June 2016. And by inference, states with low margins would have gotten more of these payments than farmers in other regions with the higher margins.
There are other options as well, such as increasing coverage levels to cover more costs than just the milk-feed margin, some type of revenue insurance program or reverting to a Milk Income Loss Contract (MILC) type of program.
Source: DairyHerd
Link: http://www.dairyherd.com/magazine/costs-fixing-dairy-margin-protection-program