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Farmers Urged To Buy Federal Milk Price Insurance

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Charlotte Albright
/
VPR
Peter Gebbie, a farmer from Greensboro, takes his seat at a workshop explaining the federal government's newest milk price support insurance plan, the Margin Protection Program.

Dairy farmers have a new way to protect themselves against falling milk prices and rising feed costs. The Margin Protection Program is part of the federal Farm Bill approved this year. But this is not a handout—it’s an insurance program, and farmers have lots of decisions to make about whether  and how to enroll.

The U.S. Department of Agriculture has teamed up with the University of Vermont Extension Service to make a pitch for the new program. State officials have been holding workshops to explain it, including one at a Newport restaurant.

As presenters noted, this has been a pretty good year for dairy farmers, with relatively high milk prices and manageable feed prices. But 2009 was a disaster, and economic forecasters say the dairy industry could be riding a roller coaster in the years ahead.

Maybe that’s why more than fifty farmers crowded around tables to learn how to tap into federal funds ahead of time, if they see dark clouds looming. It used to be if milk prices dropped precipitously, Uncle Sam just put a check in the mail. No more, says Deputy Secretary of Agriculture, Diane Bothfeld.

“So the whole federal government and all the USDA programs is moving away from just a direct payment, so farmers need to take an active role in protecting themselves with this type of insurance. Farmers in Vermont have been familiar with crop insurance where if there’s a crop failure they would sign up and have insurance for that. This is just another step in that direction. It gives them some responsibility but also some management of that risk,” Bothfeld explained.

But how to manage risk in 2014, when weather and global markets are so volatile? Unlike their fathers or grandfathers, today’s farmers have computer software to help them forecast the future, and navigate their choices when it comes to buying insurance.  The new price support program requires farmers to have, as college professor John Newton told the audience, “skin in the game.”

“At the University of Illinois we developed the decision tool for dairy farmers with this new Margin Protection Program so I am here in Vermont to demonstrate the tool, show farmers how it works so they can make informed risk management decisions,” Newton said as farmers were taking their seats.

Despite a spotty internet connection—which farmers say they might also have at home—Newton clicked through colorful, complicated charts that help farmers to decide how much insurance to buy depending on their size and needs. Many watched the PowerPoint intently. But Peter Gebbie, who milks 375 cows in Greensboro, cautions that while programs like this can help farmers, they are also an added expense.

“It’s all a guessing game; I’m going to buy insurance, maybe, hoping that I  make money. There’s absolutely no guarantee,” Gebbie said.

Unlike previous federal support programs based solely on farming revenues, this one also takes costs into account. It pays farmers when the difference between feed prices and milk prices reaches a dangerous tipping point. But Gebbie notes that those payouts are based on a national average of feed prices, a calculus which may not reflect local conditions. Still, even though he fears his premiums may be about the same as his payouts, he says he will sign up. Bob Parsons, an agricultural economist with the Extension Service, says that’s a wise move.

“So whenever you could actually have a situation where you could have high milk prices and high feed costs and the return is still low, it’s still going to help farmers in that time, but it still requires the farmers to do a little planning. They have to sign up, they make their decision,” Parsons said.

At five regional sessions held in mid-October, state agriculture officials say they reached over 200 farmers. Most took home the information packets and paperwork they will need to meet the first enrollment deadline at the end of November. But a lot say they will need more help to navigate the website and fill out the registration forms.  

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