Dairy Margin Protection Program Analysis
The USDA has a Dairy Margin Protection Program (MPP) website that provides updated information. This information includes historical data along with a monthly update on monthly margin (All-Milk Price less calculated feed costs). As expected, the margin for 2014 was substantially in excess of the highest margin ($8) that could be accessed by dairy producers. However, the story for 2015 is much different. For those producers who elected the highest margin protection of $8, the January/February calculated margin ended up being $7.9955. This may result in a very small payment for these dairy producers.
For the month of March, 2015, the reported All Milk US price was $16.60. The average feed components were as follows:
- Corn $3.81 (times 1.0728),
- Soybean Meal $357.83 per ton (times .00735)
- Alfalfa Hay $172 per ton (times .0137)
This results in a calculated feed cost of $9.073819 or a net margin of $7.526182. If the final number for April is less than $8.47, there will be another margin payment for those diary farmers electing the highest margin. If the final April number is less than $7.47, then the next margin level elected will see a payment too. We already know that the soybean meal component dropped to $336.61 from $357.83 and I am guessing that the average corn price was probably 10 cents lower. Based on estimates from the University of Wisconsin, it appears that the US All Milk Price may drop to about $16.10 for April. This will result in a margin of about $7.25-7.30. Therefore, it is highly likely that the $7.50 and $8 margin levels that were elected by dairy producers will see a payment for the March/April segment.
Some key statistics available on the site:
- 25,102 dairy farms out of the 45,344 total dairy farms elected some level of coverage (55%), however, based on pounds of production, over 80% of all production signed up for the program.
- California had the highest volume of production signed up at 33.4 billion pounds (1,112 dairies), while Wisconsin had the highest number of dairies sign up at 6,188 (out of 10,290 total dairies).
- Major producing states (over 5 billion pounds) that had more than a 90% sign-up rate were Idaho (13.1 billion out of 13.9 billion), New Mexico (7.8 billion out of 8.1 billion) and Texas (9.6 billion out of 10.3 billion). It appears that the larger dairy states west of the Mississippi River had a higher percentage sign-up than other states.
- 261 dairies totaling slightly more than a billion pounds of production signed up for the $8 coverage. About 1,430 dairies totaling 4.228 billion pounds of production signed up for the $7.50 level.
- As expected, the highest amount of sign-up was for the “free” $4 level at 97 billion pounds and second was the $6.00 level at 29.6 billion pounds followed closely by the $6.50 level at 22.3 billion pounds. As we had discussed in previous posts, the jump in premium from the $6.50 to $7.00 level cost 54 cents, thus this level only had 1 billion pounds sign up.
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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