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The Key Differences between the Margin Protection Program and Dairy Margin Coverage

University of Minnesota Extension, Stearns County News    
January 2, 2019                                    
                                                
Source:        Emily Wilmes, Extension Educator-Livestock
University of Minnesota Extension 
Stearns, Benton & Morrison Counties

 


The Key Differences between the Margin Protection Program and Dairy Margin Coverage
By Emily Wilmes, University of Minnesota Extension

ST. CLOUD, Minn. (01/02/2019) — After a lot of back and forth and conferencing, we have a 2018 Farm Bill! Agricultural groups and parties on both sides are expressing general satisfaction with the new Farm Bill and the programs it will provide. 

A key change is to the 2014 Farm Bill’s Margin Protection Program (MPP), which is now called Dairy Margin Coverage, or DMC. You may recall that MPP went through some changes in early 2018 after the Bipartisan Budget Act of 2018, including new coverage levels for the first 5 million pounds of production, and reduced premiums on catastrophic coverage levels for larger producers. The revamped Dairy Margin Coverage includes those changes and more. Let’s do a quick comparison. (Want to skip all the reading? Check out the comparison at-a-glance table below!)

First, the coverage options are expanded even more. Under the 2014 Farm Bill MPP, coverage was available from $4.00 to $8.00 in 50 cent increments. Under Dairy Margin Coverage, farmers can get coverage from $4.00 to $9.50 in 50 cent increments. The amount of coverage has also changed, from 25-90% in 5% increments to 5-95% in 5% increments. DMC will also keep the Bipartisan Budget Act change of Tier 1 prices being good on the first 5 million pounds of production, versus the original 4 million pounds. These changes provide producers with a lot more flexibility in how they cover their milk. 

An exciting change to the program under DMC is that it does more than MPP to encourage risk management strategies. If farmers sign up for the program for 5 years, they will receive a 25% discount on their premiums. In addition, the restriction of having to choose between DMC and Livestock Gross Margin has been eliminated. Please note that the new Dairy Revenue Protection program is also available. 

With the Margin Protection Program, there was no coverage flexibility for larger operations. With Dairy Margin Coverage, the first 5 million pounds can be enrolled at the $8.50, $9.00, or $9.50 level and milk in excess of 5 million pounds can be enrolled independent of that, at levels of $8.00 and below. Coverage above 5 million pounds, or Tier 2, is available at increased premiums. 

Continuing the trend from the early 2018 changes, premiums across the board are greatly reduced compared to the original MPP premiums. For example, $8.00 coverage is 10 cents per cwt. under DMC versus 47.5 cents per cwt. under the original MPP schedule. The $9.50 coverage level available on the first 5 million pounds of production history has a premium of 15 cents per cwt. And, of course, there is the 25% discount for producers who enroll for 5 years.

DMC has two final pieces that seek to offer relief from the less-than-ideal Margin Protection Program. First, dairy operations that were prohibited from participating in MPP following the early 2018 changes due to enrollment in an LGM contract can retroactively enroll in coverage. Second, dairy operations have the opportunity to utilize 75 percent of the net premium paid for MPP from 2014‐2017 as a credit for future DMC premiums. Alternatively, operations can elect to receive 50 percent of net premium as a direct refund. Essentially, this recognizes the ineffectiveness of the Margin Protection Program and incentivizes participation in the revamped program, Dairy Margin Coverage.

We finally have the 2018 Farm Bill, and the changes to the dairy safety net program provides dairy producers with the best option they’ve had in years.

CHART:  Comparison at-a-glance between Margin Protection Program and Dairy Margin Coverage

 
 Margin Protection ProgramDairy Margin Coverage

Production History covered (in 5% increments)

25%-90%5%-95%

Coverage levels (in 50 cent increments)

$4.00-$8.00$4.00-$9.50
Pounds of production history eligible for Tier 1 premiums

4 million pounds

5 million pounds
Risk management optionsMargin Protection Program OR Livestock Gross Margin (not both)Ability to enroll in both Dairy Margin Coverage and Livestock Gross Margin (Dairy RP also available)
Premium discountsNone available25% discount with 5-year enrollment
Coverage flexibility for large operationsNo flexibilityFirst 5 million pounds can be enrolled between $8.50-$9.50, additional milk can be enrolled at $8.00 or below