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Basics of the New Dairy Insurance Program

Basics of the New Dairy Insurance Program
Missouri economist suggests new dairy programs in 2014 farm bill may require more planning, but they don't have to be complicated

Wading through new dairy policy may seem confusing at first blush, but it doesn't have to be that way, suggests Joe Horner, University of Missouri Extension economist.

The new farm bill safety net for dairy producers, called a Margin Protection Program, may take more planning than the Milk Income Loss Contract in past farm bills, Horner says.

He says the USDA program is voluntary, so producers don't have to enroll. But the insurance is subsidized and some is free. The program allows those enrolled to select a level of margin, or income over feed costs.

Missouri economist suggests new dairy programs in 2014 farm bill may require more planning, but they don't have to be complicated

Margins are calculated at the national level, not at farm level. For decision-making, however, Horner urges producers to know their dairy margin – milk income less feed costs. That margin helps decide which level to insure.

The national feed cost is based on prices of corn, soybean meal and alfalfa hay.

Related: Dairy Policy Getting a Hard Look in Farm Bill Negotiations

USDA will recalculate the margin every month. If the margin drops below the insured level for two months, the producer receives a check. Insurance pays when the margin is squeezed.

The insurance rates are fixed for the life of the farm bill. Premiums are higher for producers selling more than 4 million pounds of milk a year. There is a free lower level of insurance. The 4 million pounds level equals about 200 dairy cows.

The biggest decision for producers, Horner says, will be how much margin to insure. Under the plan, a producer can insure from 25% up to 95% of milk sold.

Sign-up will be at local USDA Farm Service Agency offices. FSA charges a $100 annual administrative fee, even for the free insurance.

Horner cautions that FSA is not ready to take enrollments. The agency is still writing regulations. Meanwhile, MILC continues until the margin protection program arrives, or Sept. 1 at latest.

View MU's guide "How to Compute Your Cost of Producing Milk" for more information.

In talks to producers, Horner adds a disclaimer: He is interpreting what he reads in the farm bill. "FSA is the final authority," he says.

TAGS: USDA Soybeans
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