Is There An Error in the Dairy Margin Protection Program

The new farm bill provides dairy farmers with a margin protection program that will pay them if the average milk price for a two month period does not exceed the average feed price.  The average feed price is comprised of corn, soybean meal and alfalfa.  Dairy farmers who enrolled in the program do not have to pay any premiums if their coverage is at the $4 level.  Between $4 and $8, they are required to pay an annual premium per cwt based upon the level of coverage selected.

In reading the premiums per cwt in the farm bill, I believe that a major error in pricing has occurred.  The cost to insure 100 lbs of milk for a full year rises from $.04 for $5 of coverage up to $1.36 for $8 of coverage.  However, the premium for $6.50 of coverage is $.29 per cwt while the premium for $7.00 (only 50 cents more) is $.83 per cwt or an increase of $.54 per cwt.  Therefore, if you want to get 50 cents of possible insurance coverage for the year, you are required to pay 54 cents.  This does not sound correct to me, especially since the increase in premium from $7 t0 $7.50 is only $.23 per cwt.

I am guessing that there is typo in the farm bill on this premium, but I am not sure if USDA has the authority to overturn it without consent from Congress.  If it remains at this level, it appears the bargain is the $6.50 level, not $7.

We will keep you posted if they change it.

Paul Neiffer, CPA