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MPP application date looms

By Staff | Sep 26, 2015

By MICHELE LINCK

fiddelke@longlines.com

ORANGE CITY – Dairy farmers have until Wednesday to sign up for the new, insurance-based Margin Protection Program for dairy.

The MPP, which began in 2014, replaces the previous Milk Income Loss Contract, or MILC.

Sign-ups for MPP are available at designated Farm Service Agency offices.

A refresher course on the details of MPP was offered Sept. 11 via a live internet feed delivered to Iowa State University Extension offices, with on-site assistance from Extension Dairy Specialist Ryan Breuer.

Of the three people attending the workshop in Orange City, none was a dairy farmer, but all had a connection to dairy through other vocations.

Breuer said he thought most of the dairy farmers were probably busy chopping silage.

Robert Tigner, a University of Nebraska-Lincoln Extension ag management specialist, offered a new analysis and details on the role of the MPP program.

He said last year, milk prices spiked at $25 per hundred weight – an all-time high – while 2013 jumped between $16 and $22, “the highest margin by far.

“We want, and need, more milk,” Tigner said.

And, he noted, production has increased since May 15. It was up 4.4 percent in Iowa, 8.9 percent in South Dakota, 4.5 percent in Wisconsin and 3.8 percent in Minnesota.

At the same time, California’s milk production declined 2.9 percent.

Tigner said the drought in Oregon, Washington and Idaho – the most severe in 1,200 years – is increasing feed costs there.

He said that typically, Wisconsin’s milk prices are higher that California’s, but the demand in California for skim and powdered milk is pushing California prices higher.

“Consumer (numbers) are pretty good today,” Tigner noted.

But he added there is concern about the economy.

“There is less eating out; that’s where more dairy products are consumed.”

In addition, he said U.S. butter is twice the world market price, as prices for dairy products overseas founder.

“The strong dollar is not good for exports,” Tigner said.

He added it’s easy for foreign companies to export dairy into the United States.

Tigner noted the Global Dairy Trade Index auction is the lowest it has ever been for dairy products overseas.

Europe is at 18.38, New Zealand at 13.61 and the U.S. is at just $10.61.

“Almost every week, (U.S.) exports are being managed with government assistance,” Tigner said.

Since weather forecasters are predicting the strongest El Nino in 50 years, Tigner said that will bring hot, dry weather to Australia and New Zealand, and lead to the culling of dairy herds, pushing milk prices up.

Tigner believes the futures market got the milk market mostly right this year and predicted it would continue to have $8 margins through December.

Marin Bozic, an assistant professor at University of Minnesota and director of the Midwest Dairy Research Center, said the former marketing approach was to hedge only when the farmer disagreed with the market, or to sign up for subsidies if they were high.

“Learn risk management,” he urged, describing three possible scenarios.

  • Fragile, for those would have problems surviving a major downturn in profits.
  • Robust, for those whose financial position and cost of production allow them to be strong through a large and prolonged downturn.
  • Anti-fragile, for farm benefits from milk and feed volatility; for example, those who have a strong financial position, a low cost of production and have protected downsides in margins.

In addition, Bozic noted that having strong financials will enable dairymen to buy farms at a good price.

He said every farmer should know their cost of production and farm financials, then use that information to “execute a ruthless stress test analysis.

“It is key to understanding if your operation is fragile or robust.”

Chris Wolf, of Michigan State University Extension, outlined how to use the MPP Decision Tool. He said the program is a stress test that uses debt and other financials to give dairy farmers an idea of where they stand.

Wolf warned that margins could move rapidly, and a financially fragile farm may not survive.

Tigner recommended using dairymarkets.org/MPP/tool and www.futurefordairy.com to calculate a dairy’s financial well-being.

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