Dairy Margin Protection Program FAQs

Frequently Asked Questions (FAQs), information and answers regarding the Agricultural Act of 2014 Dairy Title's Margin Protection Program.
Dairy Margin Protection Program FAQs - Articles


What is the margin?

The milk margin is the difference between the milk price and feed costs on a hundredweight (cwt.) basis. The 2014 Farm Bill uses the national all-milk price and prices for shelled corn grain, soybean meal and alfalfa hay to determine the national margin by which the dairy margin protection program (MPP) payments are determined. The Agriculture Prices Report published at the end of each month by the National Agricultural Statistics Service (USDA NASS) is source for the national milk, shelled corn and alfalfa hay prices. The national soybean price derived from the Central Illinois Soybean Processor Report published by the Agricultural Marketing Service (USDA AMS). The 2014 Margin calculation includes feed costs for all cow groups including lactating and dry cows and heifers.

How is the Margin Protection Program administered?

The Margin Protection Program (MPP) will be administered by the Farm Service Agency (FSA) of the United State Department of Agriculture (USDA). A $100 annual fee will be charged to enroll in the program for the life of the farm bill (approximately five years). Enrollment will be available when the details of the farm bill are finalized by the USDA sometime between now and September 1, 2014. Farms must enroll this first year to be eligible to receive the Margin Protection for the life of the farm bill.

What margin coverage level can I select?

Producers can insure margins between $4.00/cwt and $8.00/cwt at $0.50 increments. Producers can elect to cover between 25% and 90% of their highest annual milk marketings during 2011, 2012, 2013 at 5% increments.

Example 1.

YearTotal Pounds Sold

This farm will be able insure up to 90% of 2,670,000lbs because that was their highest annual milk sales from the previous three years.

Does the amount of pounds I can insure stay the same during the life of the farm bill?

Farm production history is used to calculate the initial coverage levels for producers (see Example 1) in the first year of the farm bill. Each year after, production levels will increase based on the national trends in total milk production across the country. Individual dairy farm growth is not a factor in production coverage availability.

However, producers will be able to change the percentage covered (between 25-90%) and the margin level ($4.00-$8.00) covered each year.

What premiums/fees are involved in the MPP?*

The $100 annual administrative fee is required to be enrolled in the program. This guarantees margin protection at $4.00/cwt. Premiums per hundredweight (cwt) are then charged for protection from $4.50 to $8.00/cwt. Premiums for the first four million pounds of milk marketed are less than premiums for milk marketed over four million pounds and will be reduced by a further 25% during 2014-2015. A full chart depicting the premiums can be found at the USDA ERS website.

*Specific rules for margin payments and premiums have yet to be finalized. This is a working document and will be updated as rules are written and signed by USDA.

How is the USDA farm bill margin different from Income Over Feed Costs (IOFC) or Penn State's margin?

Income Over Feed Costs (IOFC) is a measure of the same information: milk price and feed costs, but represented on a per cow per day basis. The Penn State IOFC program measures gross milk income minus the cost of feed for the lactating cows. The Penn State margin, therefore, is the difference between gross milk income and the cost of feed for the lactating cows represented as dollars per hundredweight ($/cwt). This is a different measure from the national USDA milk margin which uses all feed costs for all cow and heifer groups, assuming an 80% replacement ratio.

Should my farm's margin match the USDA national milk margin?

No. When you calculate your farm's margin, you will use your own gross milk price and feed costs based on the cost to produce your home-raised and purchased feeds. Therefore the two margins will not be identical. The key, however, will be to track your farm's margin with the national margin, comparing how the margins trend and if the same dips or bumps in margin occur at both the national level and your farm.

What information do I need to calculate my own farm's margin?

To calculate your own farm's margin you will need to know your gross milk price and your own farm's feed costs.

You can calculate this using Penn State's Dairy Cash Flow Program or our mobile applications, DairyCentsPRO and CropCents .

Feed costs include all of the costs to produce, harvest and store crops as well as purchased feed for all animal groups: lactating and dry cows and heifers.

Why do I need to calculate my own farm's margin?

Knowing your own farm margin is very important because each farm varies in how much of its feed is grown on the farm and how much is purchased, not to mention the different rations for each group of animals. Furthermore, milk price can depend on milk quality and component premiums and the market when the milk is sold. Using standard prices and production will give only a partial picture of the farm's actual margin.

How does the MPP fit in with MILC and LGM-Dairy?

MILC will remain in place until the MPP is open or September 1, 2014, whichever is earlier.

LGM-Dairy will remain an option for producers. However, if a farm enrolls in the MPP it is not eligible for LGM-Dairy.

What is the status of other USDA programs like the Dairy Product Price Support Program (DPPSP)?

The DPPSP and the Dairy Export Incentive Program (DEIP) are repealed. The Dairy Product Donation Program (DPDP) requires the USDA to purchase dairy products at market prices and donate these products to nutrition programs in the event that the USDA margin falls below $4.00 for two consecutive periods.

Does the MPP provide any protection if my margin decreases becasue of an on-farm emergency?

In the event of a farm specific situation such as a loss of crops resulting in an increase purchased feed, a drop in milk income, or other major expenses on the dairy operation, the MPP provides zero coverage. As a national margin program, the MPP only covers instances of a national margin crisis. It does not provide coverage for farm-level disasters.