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Extension > Local Extension Offices > Morrison > County Agriculture Educator > Articles > Comparing Farm Bill Dairy Programs: MILC vs. MPP

Comparing Farm Bill Dairy Programs: MILC vs. MPP

University of Minnesota Extension, Stearns County News
October 29, 2014        
           
Source:  Emily Wilmes, Extension Educator-Livestock
University of Minnesota Extension
Stearns, Benton & Morrison Counties


Comparing Farm Bill Dairy Programs: MILC vs. MPP
By Emily Wilmes, University of Minnesota Extension

ST. CLOUD, Minn. (10/29/14) — Dairy producers: there is a little more than month left to sign up for the Margin Protection Program!  Sign up ends on November 28, and if you haven’t started thinking about the Margin Protection Program, now is the time to do so!  The Margin Protection Program is replacing Milk Income Loss Contract, or MILC, which officially expired on August 31st of this year.  The switch from MILC to MPP has left many farmers with questions, and I hope to clear up some confusion. 

Let’s compare the basics of both programs: program overview, eligibility, sign up, and payments.  All of the following information is provided by the Farm Service Agency. 

MILC compensated farmers when domestic milk price fell below a certain level.  MPP offers protection to dairy producers when the difference between the all milk price and the average feed cost, “the margin”, falls below a certain dollar amount selected by the producer.  Eligibility for MILC was all producers who commercially produce milk in the United States.  Eligibility for MPP also includes that requirement, as well as providing proof of milk production at time of registration AND the farmer cannot be concurrently enrolled in the Risk Management Agency’s Livestock Gross Margin for Dairy program, also known as LGM-Dairy.

Sign up for MILC extended through the termination of the program, and once enrolled farmers did not need to reapply.  For MPP, producers must register for coverage at the Farm Service Agency office that maintains their farm records.  Along with sign up, there are two forms to complete and the $100 administrative fee and any applicable premiums need to be paid.  Additionally, farms must re-register for the program each year.  Once you have enrolled in the program, you must remain in it for the duration of this current Farm Bill, which will expire in 2018. 

MILC payments were dispersed on a monthly basis when Boston Class I milk price fell below $16.94 per hundredweight.  MPP payments will be made whenever the average actual dairy production margin for a consecutive two-month period is less than the coverage level threshold selected by the participating dairy operation. 

Now that we’ve gone through the basics, let’s take a closer look comparing how payments were and are calculated.  As already stated, MILC payments were based on the Boston Class I milk price.  Each month, USDA would subtract that price from $16.94 and multiply that difference by 45 percent.  From September 2013 to January 31, 2014 the difference was multiplied by 34 percent.  The baseline price used, $16.94 per hundredweight would be adjusted upward with the National Average Dairy Feed Ration was greater than $7.35.  From September 2013 to January 31, 2014 the level was $9.50. 

Now let’s jump to payment calculations for the Margin Protection Program.  Payments are triggered by the selected production margin--which is the difference between the national all-milk price and the national average feed cost.  The all-milk price is the average price of milk marketed in the United States as reported by the National Agricultural Statistics Service.  The national average feed cost is calculated using a nationally representative feed ration.  The cost is calculated by using the sum of 1.0728 times the price of corn per bushel, plus 0.00735 times the price of soybean meal per ton, plus 0.0137 times the price of alfalfa hay per ton. Current prices for each of the three feed components will be used.  It’s important to note that the production margin will be calculated each consecutive two-month period, consisting of January and February, March and April, May and June, July and August, September and October, and November and December. 

Once the production margin is determined, whether or not a payment is “triggered” depends on what level of coverage is selected.  Producers can pick coverage levels between 4 and 8 dollars, in 50-cent increments.  They also select what percentage of their milk they want to protect, from 25 to 90 percent, in 5 percent increments.  If the production margin is at or below the selected level, a payment is triggered.  The payment is the selected coverage level minus the actual dairy production margin times the selected coverage percentage times the production history in hundredweight, divided by six.

Hopefully these items give you a clearer picture of the major differences between MILC and MPP.  When it comes to payments, MPP may seem more confusing as there are more steps involved.  However, if you spend some time using your own numbers in the calculations, it can start to make more sense.  There is a great online tool available that allows producers to see how the program works, using real data and a farm’s own production numbers. This free tool is available at www.dairymarkets.org/MPP/Tool.  Simply go to the page, agree to the terms, and you can start using the tool.

If you would like additional help, or still have questions, don’t forget that UMN Extension and Farm Service Agency are still putting on their Dairy Farm Bill workshops!  These will be 2 hour workshops with the first hour being done by FSA covering all the rules and guidelines for the dairy program portion of the farm bill. The second hour will be an Extension educator covering the aforementioned online decision tool and risk management strategies to consider when making a decision about enrolling in the dairy program.

In central Minnesota, the remaining workshops include:

  • Monday, November 3rd from 10:00am-12:00pm at the American Legion in Paynesville
  • Monday, November 3rd from 1:00pm-3:00pm at the VFW Granite Post in St. Cloud
  • Wednesday, November 5th from 10:00am-12:00pm at the Holiday Inn in Alexandria
  • Thursday, November 6th from 1:00pm-3:00pm at the Pierz Ballroom in Pierz

If you have any questions about these workshops or the Margin Protection Program, call me at the Stearns County Extension Office at 320-255-6169, Benton County Extension Office at 320-968-5077, or Morrison County Extension Office at 320-632-0161.
 

Contacts

Emily Wilmes
Extension Educator, Ag Production Systems - Livestock
(320) 255-6169
krek0033@umn.edu
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