Agricultural groups and parties on both sides are expressing general satisfaction with the new farm bill and the programs it will provide.
A key change is to the 2014 Farm Bill’s Margin Protection Program, now called the Dairy Margin Coverage program. You may recall that MPP went through some changes in early 2018 after the Bipartisan Budget Act of 2018, including new coverage levels for the first 5 million pounds of production and reduced premiums on catastrophic coverage levels for larger producers.
The revamped DMC includes those changes and more. Let’s do a quick comparison:
First, the coverage options are expanded even more. Under the MPP, coverage was available from $4 to $8 in 50-cent increments. Under the DMC, farmers can get coverage from $4 to $9.50 in 50-cent increments. The amount of coverage also has changed, from 25 percent to 90 percent in 5 percent increments to 5 percent to 95 percent in 5 percent increments.
DMC also will keep the Bipartisan Budget Act change of Tier 1 prices being good on the first 5 million pounds of production versus the original 4 million pounds. These changes provide producers with a lot more flexibility in how they cover their milk.
An exciting change to the program under DMC is that it does more than MPP to encourage risk management strategies. If farmers sign up for the program for 5 years, they will receive a 25 percent discount on their premiums. In addition, the restriction of having to choose between DMC and Livestock Gross Margin has been eliminated. Please note that the new Dairy Revenue Protection program also is available.
With the MPP, there was no coverage flexibility for larger operations. With DMC, the first 5 million pounds can be enrolled at the $8.50, $9 or $9.50 level and milk in excess of 5 million pounds can be enrolled independent of that, at levels of $8 and below. Coverage above 5 million pounds, or Tier 2, is available at increased premiums.
Continuing the trend from the early-2018 changes, premiums across the board are greatly reduced compared to the original MPP premiums. For example, $8 coverage is 10 cents per hundredweight under DMC versus 47.5 cents per hundredweight under the original MPP schedule. The $9.50 coverage level available on the first 5 million pounds of production history has a premium of 15 cents per hundredweight. And of course, there is the 25 percent discount for producers who enroll for five years.
DMC has two final pieces that seek to offer relief from the less-than-ideal MPP. First, dairy operations that were prohibited from participating in MPP following the early 2018 changes due to enrollment in an LGM contract can retroactively enroll in coverage. Second, dairy operations have the opportunity to utilize 75 percent of the net premium paid for MPP from 2014 to 2017 as a credit for future DMC premiums. Alternatively, operations can elect to receive 50 percent of net premium as a direct refund. Essentially, this recognizes the ineffectiveness of the MPP and incentivizes participation in the revamped program, the DMC.
The changes to the dairy safety net program provide dairy producers with the best option they’ve had in years.