Friday is the deadline to enroll in a dairy insurance program designed to protect farmers from volatility in feed and milk prices. As of Wednesday afternoon, nearly 350 dairy farmers, or about 40 percent, have enrolled in the program, according to the Farm Service Agency’s Vermont office.
The new federal insurance program, known as the Margin Protection Program, offers farmers a lifeline when profit margins shrink due to a rise in feed costs, a fall in milk prices, or both.
Under the program, farmers pay a premium based, in part, on the size of the profit margin they want to insure. When feed prices rise or milk prices sink, their profit margin becomes smaller. At a certain point, the producer’s insurance will kick in to prevent more significant profit losses.
Robert G. Paquin, executive director of the Vermont Farm Service Agency, said milk prices are expected to drop to around $18 per hundredweight next year, down from the near $25 this year. The drop may be severe enough to trigger Margin Protection coverage.
“We just don’t know where the margins are going. We do know that the price of milk is dropping. We know that exports are very high,” he said.
The signup deadline for 2015 coverage is Friday. Applications for 2016 will be accepted starting in July of next year. The state does not expect all of 874 registered dairy farms to sign up, and so far has identified 43 that will not enroll.
Why some will opt out
Among the reasons: procrastination, a “blind optimism” prices will remain stable, and a change to a more involved instance enrollment process. Some large farms have opted for an alternative insurance plan. However, officials expect many more will sign up by the end of the week.
The margin is calculated by using national all-milk price and national average costs for hay, alfalfa, corn, soy and other conventional feeds.
For this reason, the state’s 200 organic dairy farmers may be among those also not signing up because they pay a different price for organic feed, and many are able to lock in long-term price contracts for their milk, according to Bob Parsons, an agricultural economist is UVM Extension.
“(Organic) feed costs might start running up, and return over feed cost is shrinking,” Parsons said as an example. “If the conventional market is doing OK it doesn’t matter that I’m doing bad because I’m not going to get any insurance.”
On the other hand, he said conventional milk prices could drop and organic producers would still collect insurance.
When dairy prices plummeted in 2009 to about $12 per hundredweight, many farmers needed to borrow money to pay bills. Since then, the state has lost about 200 dairy farms, many of which were absorbed by larger farms; some existing farms are still paying off debts from the lean years, experts say.
Milk prices held strong this year, officials say, but warn prices are expected to drop next year to as low as $16 per hundredweight.
‘Nothing else out there’
Signing up for dairy insurance now is like purchasing fire insurance when you can see the smoke, according to Diane Bothfeld, the deputy secretary of Agriculture.
“There really isn’t anything else out there to help them,” Bothfeld said. “You can mitigate your risk, you can cover that margin, and ensure you have the money to pay bills.”
In 2008, the state had 1,096 dairy farms. As of Nov. 1 this year, 874 dairies were registered in Vermont. Because some farms were absorbed by larger operations, officials say milk production has remained steady in the state. During this time, the average size of a Vermont dairy farm grew from 127 to 152 cows per farm, according to Bothfeld.
One farmer estimated the annual cost for new insurance program equaled one day’s production, Bothfeld said. For an average sized Vermont dairy farm that produces 2.4 million pounds of milk, insurance that covers 90 percent of the milk sold within a $6.50 profit margin would cost about $1,500 per year. Catastrophic insurance is available for a $100 flat fee.
The insurance program was included as part of the reauthorization of the Farm Bill, with a concerted push from Vermont’s congressional delegation.
Farmers can enroll at one of the nine USDA county service centers in Vermont: Brattleboro, Middlebury, Morrisville, Newport, Rutland, St. Johnsbury, St. Albans, White River Junction and Williston.
