Dairy margin protection insurance is new but not complicated, says MU economist

COLUMBIA, Mo. – When milk producers first hear of the Margin Protection Program for Dairy Producers, they become confused about the new farm bill safety net.

“It is new and different, but it really isn’t complicated,” says Joe Horner, University of Missouri Extension economist.

Margin insurance, however, takes more planning than the Milk Income Loss Contract (MILC) in past farm bills.

The USDA program is voluntary, so producers don’t have to enroll. But the insurance is subsidized and some is free. The program allows those enrolled to select a level of margin, or income over feed costs.

Margins are calculated at the national level, not at farm level. For decision-making, however, Horner urges producers to know their dairy margin — milk income less feed costs. That margin helps decide which level to insure.

The national feed cost is based on prices of corn, soybean meal and alfalfa hay.

USDA will recalculate the margin every month. If the margin drops below the insured level for two months, the producer receives a check. Insurance pays when the margin is squeezed.

The insurance rates are fixed for the life of the farm bill. Premiums are higher for producers selling more than 4 million pounds of milk a year. There is a free lower level of insurance.

The 4 million pounds level equals about 200 dairy cows. Most Missouri farms are under that level, Horner says.

The big decision will be how much margin to insure, Horner says. This takes homework.

A producer can insure from 25 percent up to 95 percent of milk sold.

Sign-up will be at local USDA Farm Service Agency offices. FSA charges a $100 annual administrative fee, even for the free insurance.

Horner cautions that FSA is not ready to take enrollments. The agency is still writing regulations. Meanwhile, MILC continues until the margin protection program arrives, or Sept. 1 at latest.

MU Extension has a guide, “How to Compute Your Cost of Producing Milk.” It can be downloaded at extension.missouri.edu/p/G3651.

In talks to producers, Horner adds a disclaimer: He is interpreting what he reads in the farm bill. “FSA is the final authority,” he says. “This is for education only.” Training is provided by the MU College of Agriculture, Food and Natural Resources.