Registration for the 2016 Margin Protection Program is currently underway, and the final day for sign up is September 30th. Now is the time to evaluate all of the tools in your risk management toolbox. This will help ensure your operation is adequately protected against declining milk prices and margins.
Four key steps to remember as you evaluate how MPP fits into your operation for 2016 are:
1. Educate yourself. If you didn’t enroll for 2015 but are looking to enroll for 2016, or if you are in need of additional information, check with your local FSA office regarding available upcoming educational meetings. You can also experiment with the updated MPP Decision Tool on the Dairy Markets and Policy website, dairymarkets.org. The decision tools allow you to stress test your dairy operation to see how varying milk and feed prices affect your operation’s financial health.
2. Leverage your network. Meet with your trusted advisors to review your operation’s current financial position, and assess how the MPP can fit into your risk management strategy. Remember, the Margin Protection Program replaced MILC and there are currently no other government safety nets to protect against significant decreases in dairy margins. As a reminder, you are no longer able to have a combination of LGM and MPP for 2016 and enrollment in LGM for any month of 2016 makes you ineligible for the MPP.
3. Evaluate your needs. If you were enrolled in MPP for 2015 and do not elect a coverage level by September 30th, your coverage will automatically default to the catastrophic $4 level. Don’t forget, you can change your coverage level right up until the registration period ends. You can go into FSA and sign up at the $4 level, evaluate projected margin positions based on markets in late September, and then confirm if you are still comfortable with your original selection or need to make a change.
4. Plan for potential expenses. Similar to last year, there is a $100 administration fee due at sign up for all coverage levels. At least 25% of your premium is due by February 1st and the remainder is due by June 1st. Talk with your lender about financing options to cover these potentially large cash outlays.
It is imperative to take some time and assess what risk management strategy is appropriate for your farm, based on your financial position and your appetite for risk. Remember leaving yourself open to the market is not a strategy, it is simply risking unknown margins on 100% of your production.
Steve is a Business Consultant working with the AgStar dairy consulting team since 2012. He grew up on a family farm in north central Wisconsin and received his Bachelor’s degree in Animal Science from the University of Wisconsin – Madison and his Master’s degree in Animal Science from North Dakota State University.
