More Than Half of Dairy Producer’s Enroll in Margin Program
The USDA just announced that more than 23,000 dairy producers enrolled in the new Dairy Margin Protection Program for 2015. As an example, in the state of Wisconsin more than 55% of the producers signed up and 55% of those that signed up did so at some level of buy-up coverage. The $4 level was free with various additional rates from $4.50 to $8.00.
The original sign-up period began in September, 2014 with the US All Milk Price at near record recent high of $25.70 and feed prices at $10.30. This resulted in a margin of over $15, well above the $8 level to get any payment. Well, a few months have certainly changed the environment that dairy farmers will face. In December, the US All Milk Price has dropped from $25.70 all the way down to $20.30 a drop of over $5 while the feed component has dropped less than a $1. And the trend for milk prices for 2015 remains bearish based on futures and cash markets with the futures market possibly predicting Class III milk prices under $14 during late spring/early summer.
If prices do get that low, then almost every dairy farmer who signed up for the margin protection plan and purchased buy-up coverage (probably at the $6.50 level or lower) may get a payment or two, perhaps more.
The announcement did not provide any details on the amount of coverage elected at the less than 4 million pound production level versus higher levels. It would be my estimate that the majority of the protection purchased was at the less than 4 million pound level due to the much lower premium requirements.
For those farmers who did not sign up and wish to obtain coverage for 2016, your sign-up period begins July 1, 2015 and ends September 30, 2015. The only penalty for not signing up for 2015 is a loss of the automatic bump in production coverage (which was less than 1% for 2015) and possibly not obtaining any payments at the $4 level (since this level was free other than for an $100 processing fee).
If any payments are triggered this year, we will keep you posted.
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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