Farm Bureau proposes new revenue-based dairy protection
BOWIE, Md. (Sept. 26, 2017) — The American Farm Bureau Federation is proposing new dairy revenue protection insurance to improve on existing risk management tools for farmers.
A proposal submitted to the Federal Crop Insurance Corp. would provide a revenue-based insurance option for farmers unhappy with current margin-based dairy insurance. John Newton, the Farm Bureau’s market intelligence director, spoke to the University of Maryland’s yearly crop insurance workshop Sept. 12 to detail the plan.
The Margin Protection Program, created in the 2014 farm bill, “didn’t work as well as dairy farmers anticipated,” Newton said. “If feed prices are really low, you need really low milk prices to trigger a margin-based (insurance) program.”
But with feed and milk prices stuck concurrently at low levels, that margin didn’t fall significantly below coverage thresholds. In the 2015 and 2016 coverage years, $100 million in farmer premiums yielded only $12 million in program payouts, Newton said.
This led to a decline in MPP participation this year, and the USDA is allowing farmers to opt-out in 2018 at no charge.
The Farm Bureau’s proposal would allow farmers to insure the revenue from milk sales during a particular quarter, using futures market prices and expected production. Insurance could be purchased on that anticipated revenue. If it fell below that insured guarantee, the farmer would receive an indemnity.
“Can we replicate the success of revenue protection policies and bring it to the dairy sector?” he said.
Farmers could select a value of the milk in the insurance contract — Class III or Class IV — or base it on the milk’s components.
A revenue-based program would have worked particularly well in 2015 or 2016 when milk prices plummeted by nearly 50 percent, Newton said. A Farm Bureau analysis of average dairy revenue protection premium costs between 2008 and 2016 suggested a farmer buying insurance one quarter ahead would pay a 5-cent per hundredweight premium in addition to a 4-cent government cost share. Four quarters ahead, a premium would cost 20 cents per hundredweight with a 16-cent government cost share.
Some officials have suggested buying Livestock Gross Margin insurance for Dairy Cattle, which provides protection when feed costs rise or milk prices drop. But Newton said LGM is comoplicated.
“I have a Ph.D. … and I don’t understand LGM dairy,” he said.
The Federal Crop Insurance Corp. has funded partial development of the new Farm Bureau program, and it could be available, if approved, by next year.
“I’ve gotten a lot of positive feedback from dairy farmers,” he said.
Easton, MD 21601-8925