Details of the Dairy Margin Protection Program

The DMPP is administered by the Farm Service Agency (FSA) of the USDA and is authorized through December 31, 2018. Producers who elect to enroll their dairy herd in the DMPP may not simultaneously participate in the Livestock Gross Margin (LGM-Dairy) insurance program for the same dairy herd. Likewise, a producer who has existing coverage in LGM-Dairy may not enroll the same herd for coverage in the DMPP until the LGM-Dairy coverage period has ended.

Establishing Actual Dairy Product History

Producers who choose to participate in the program must establish an Actual Dairy Production History (ADPH) for each of their enrolled dairy herds. The ADPH is equal to the highest production level recorded in either 2011, 2012 or 2013. For new dairy operations (in operation for less than one year), the ADPH is set by either:

• Extrapolating existing monthly production levels to an annual level, or


• Estimating the actual milk marketings based upon the herd size of the operation relative to the national rolling herd average data published by the USDA

In each subsequent year, the ADPH for each operation is adjusted by the percentage change in annual U.S. aggregate milk production reported by the USDA.

[rich-callout title="Enrollment Deadline"] DMPP signup closes November 28, 2014. Producers can register for the last four months of 2014, as well as 2015.[/rich-callout]Producers may enroll a dairy herd in the DMPP and must pay a $100 per year enrollment fee to the USDA for each year of participation in the program. Coverage is offered between 25 and 90 percent of the ADPH in 5 percent increments. Margins are protected in six two-month “buckets” during the year (January-February, March-April, May-June, July-August, September-October, and November-December), with 1/6 of the annual elected coverage (coverage percent x ADPH) assigned to each bucket.

The Actual Dairy Production Margin (ADPM) is equal to an average milk price minus an average feed cost on a per hundredweight of milk production basis. The NASS “All Milk” price received by producers (as published in the milk-feed price ratio section of the monthly USDA Agricultural Prices Report) is used as the milk price. The feed cost formula utilizes the national NASS corn and alfalfa hay prices (also reported in the same section of the monthly Agricultural Prices Report) and the Central Illinois soybean meal price reported by the Agricultural Marketing Service in the Market News – Monthly Soybean Meal Price Report. The feed cost (per cwt of milk production) is calculated as:

1.0728 X CORN PRICE + 0.00735 X SOYMEAL PRICE + 0.0137 X ALFALFA HAY PRICE

The ADPM for each two-month “bucket” is the simple arithmetic average of the margins for the two months.

Producers may elect margin coverage levels between $4.00 and $8.00 per hundredweight in 50 cent increments. The lowest level of coverage ($4.00) is offered for no premium; however, producers must still pay the $100 per enrolled herd administration fee. Higher levels of coverage ($4.50 through $8.00) are offered on a two-tier fixed premium schedule. Their first tier (“Tier 1”) covers the first 4 million pounds of milk (per operation) covered under the program. Based on 2013 average U.S. milk production per cow, Tier 1 would cover the annual production of a 183-cow dairy herd. The second tier (“Tier 2”) covers all milk production (per operation) above 4 million pounds. No limit is placed on the amount of milk production that can be enrolled (besides the ADPH and maximum coverage percentage), and the program has no payment limitations.

Table 1 shows the two-tier premium schedule for the DMPP. Note that the premiums for Tier 1 coverage for the 2014 and 2015 calendar years are discounted by 25 percent, with the exception of the $8.00 coverage level. Also note that the premium structure is fixed in the legislation and does not change during the life of the program (unlike the Title XI insurance programs for which premiums are calculated using actuarial formulas that change with production history and market conditions).

Premium Per Hundredweight of Covered Production

Coverage Level*	Up to 4 Million Pounds**	Over 4 Million Pounds
$4.00	Free	Free
$4.50	$0.010	$0.020
$5.00	$0.025	$0.040
$5.50	$0.040	$0.100
$6.00	$0.055	$0.155
$6.50	$0.090	$0.290
$7.00	$0.217	$0.830
$7.50	$0.300	$1.060
$8.00	$0.475	$1.360

*Payment if milk falls below coverage level
**Premium reduced 25% for 2014 and 2015 except for $8 coverage level

Information in this post was provided by AgriBank. AgriBank is FCS Financial’s funding source. It is one of the largest banks within the national Farm Credit System, with more than $80 billion in total assets. Under the Farm Credit System’s cooperative structure, AgriBank is owned by 17 affiliated Farm Credit Associations. The AgriBank District covers America’s Midwest, a 15-state area from Wyoming to Ohio and Minnesota to Arkansas. More than half of the nation’s cropland is located within the AgriBank District, providing the Bank and its Association owners with exceptional expertise in production agriculture. For more information, visitwww.AgriBank.com.