Dairy producers interested in participating in the new Dairy Margin Protection Plan authorized by the 2014 Farm Bill may do so starting September 2, USDA Secretary Tom Vilsack announced Thursday.
The new program focuses on covering dairy producers for the "margin" – the difference between the price of milk and general feed costs. Coverage kicks in when the margin falls below the coverage level selected by the farmer for two consecutive months.
Farmers purchasing the coverage will receive 25% to 90% of their production history, usually representative of the highest year between 2011 and 2013. There are separate production calculation options for producers just beginning a dairy operation, and premiums apply.
Additional rules also apply for dairies owned by the same family or multi-generational transfers, Vilsack said.
Dairy operations enrolling in the new program must also respect conservation compliance provisions and cannot participate in the Livestock Gross Margin dairy insurance program. Farmers already participating in the LGM program may register for MPP, but the new margin program will only begin once their LGM coverage has ended, USDA said.
Farmers have until November 28 to sign up for 2014 and 2015 coverage, USDA said. Once in the program, producers must remain in until 2018, though there will be an option to change coverage levels during an enrollment period each year.
Related: Farm Bill: Milk Producers Must Brace Selves With Margin Insurance
The program design was a turbulent topic during farm bill negotiations from 2012 to 2014, though ultimately it focused on an insurance-based model with stipulations for oversupply and encouragement of "sensible production."
"The reality is that [milk] prices were dropping more precipitously and were occurring more frequently, which gave those small- and mid-sized operators less time to rebound from difficult situations. And it is about supply," Vilsack explained on a conference call Thursday. "You really have to provide some kind of insurance protection, if you will, when feed costs go up … or when milk prices come down significantly."
Joining Vilsack on the call, Sen. Patrick Leahy, D-Vt., a proponent of the MPP, added that not only was it designed to stabilize prices, it was designed to avoid intentional overproduction through the provision that requires producers to use prior production history when electing coverage.
"It is specifically written so that you're not going to get speculators coming in, buying this, overproduce and figure the government is going to bail them out," Leahy said.
Encouraging domestic consumption, fostering exports and, Vilsack said, allowing the U.S. government to purchase supplies off the market, is the combination that will help stabilize prices.
The government-sponsored stabilization element is the new Dairy Product Donation Program, also authorized by the farm bill. In periods of low margins, the program allows USDA to purchase and donate dairy products to nonprofit organizations that provide nutrition assistance to low-income families.
Dairy operators do not need to enroll to benefit from the Dairy Product Donation Program, Vilsack said.
National Milk Producers Federation President Jim Mulhern supported the program.
"The new Margin Protection Program is more flexible, comprehensive and equitable than any safety net program dairy farmers have had in the past," Mulhern said. "It is risk management for the 21st century, and we strongly encourage farmers to invest in using it going forward."
In addition to the MPP, USDA unveiled a new web-based tool that will allow producers to make appropriate selections for the program. State Extension services and Farm Service Agencies will work to individualize selections for each state and each producer.
The Margin Protection Program final rule will be published in the Federal Register on Aug. 29, 2014. The FSA, which administers the program, also will open a 60-day public comment period on the dairy program.
The agency wants to hear from dairy operators to determine whether the current regulation accurately addresses management changes, such as adding new family members to the dairy operation or inter-generational transfers.