Dairy Margin Management Options
The new farm bill brought in an additional dairy margin management program that will be effective September 1, 2014 (perhaps later if FSA is not ready). Dairy farmers currently have Livestock Gross Margin (LGM) Insurance under the crop insurance program. It would be nice if dairy farmers could take advantage of both programs, however, the farm bill requires farmers to pick one or the other. FarmDoc Daily provided a good analysis of the benefits and pitfalls to each program in a post a couple of days ago. Here is the post.
One of the key things to note about the two programs is that the new Dairy Margin Program (DMP) is available to all dairy farmers, while LGM insurance is only available each month until the underwriters reach capacity. This may mean that you may lean toward the DMP. However, we are not yet certain if the DMP can be updated on an annual basis or if you will be locked into your choice for the life of the farm bill.
Also, as more producers take advantage of DMP which may result in increased dairy production. If this happens, the current high margins may erode substantially which will may the DMP pay more and decrease any payments under LGM.
As you can see, similar to the choices between ARC and PLC, farmers have a lot of number crunching to do and the choice that they make can permanently affect them negatively for almost five years. I would hope that the next farm bill provides more flexibility on these decisions (I am not willing to bet any money on that).
Paul Neiffer, CPA
Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a principal with CliftonLarsonAllen in Walla Walla, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. Paul and his wife purchase an 180 acre ranch in 2016 and enjoy keeping it full of animals.
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