By LEE MIELKE
Mielke Market Weekly 

USDA Secretary Tom Vilsack announced Dec. 4 that the application deadline for the dairy Margin Protection Program (MPP) will be extended until Dec. 19. The program, established by the 2014 farm bill, protects participating dairy producers when the margin – the difference between the price of milk and feed costs – falls below levels of protection selected by the applicant.

Uncle Sam’s new dairy safety net appears to have a few holes in it. Signup wasn’t going as expected, according to Bob Gray, editor of the Northeast Dairy Farmers Cooperatives Dec. 2 newsletter.

Gray reported that just 6,132 applications for MPP signups in 2015 had been received by Farm Service Agencies across the country as of Thanksgiving week. Of that number, 2,668 dairy producers had purchased insurance above the $4.00 basic margin level, only 6 percent of the approximately 45,000 dairy farmers across the U.S. Another 2,895 producers completed the necessary paperwork in their local FSA offices so they will be able to go back and elect a specific margin level, if they so choose.

USDA’s Vilsack tried to make the case for participation last week.

"The 2014 farm bill created these safety net programs to provide safeguards against the uncertainty of weather and markets, but this safety net is not automatic. Producers must visit their local Farm Service Agency office to enroll before Dec. 19," Vilsack said. "Despite the best forecasts, weather and markets can change, so a modest investment today can protect against unexpected losses tomorrow."

"For just $100, a farmer can cover 90 percent of production at $4 margin swings, and with affordable incremental premiums, dairy farmers can cover up to $8 margin swings," Vilsack said. "Those who apply this year will receive a slight increase in production protection that will not be available in the future.

"Farmers who do not sign up for the Margin Protection Program for 2015 will forfeit the 1 percent base production increase. For a 400-cow operation, this would equate to an additional 80,000 pounds of milk that are eligible for coverage. It’s a small step to take to ensure your business is covered."

Gray advised his readers to take advantage of the program as farm milk prices are expected to drop significantly in the months ahead. He concludes by reminding producers that, if they do not sign up by Dec. 19, they cannot get MPP coverage for 2015.

National Milk praised the extension of the MPP and, in Thursday’s DairyLine, Chris Galen echoed some of Gray’s concerns with respect to the lower milk prices ahead in 2015 and the need for producers to protect themselves.

He said the $100 fee for the "barebones protection" was certainly worth the cost. The basic plan may be all they need, according to Galen, as the futures portend that 2015 won’t be as good as 2014, but it won’t be a "bad year, as we look at them right now in early December." He also emphasized the importance of signing up so that the percentage increase in 2014 milk output gets applied to an individual producer’s production history. Galen told DairyBusiness Update the MPP signup has been "underwhelming," based on numbers seen a week ago.

The USDA announced the November Federal order Class III benchmark milk price Wednesday, Dec. 3, at $21.94 per cwt., down $1.88 from October but still $3.11 above November 2013, a whopping $3.24 above California’s comparable 4b cheese milk price (the biggest gap since May and the biggest since December 2011 prior to that), and equates to about $1.89 a gallon.

Class III futures portend another drop of $4.17 in December to $17.77, as of last Thursday’s settlement, which would result in a $22.32 Class III average for 2014, up from $17.99 in 2013 and $17.44 in 2012.

The November Class IV price is $18.21, down $3.14 from October but $2.31 above a year ago.

The 11-month Class III average now stands at $22.75, up from $17.90 at this time a year ago and $17.33 in 2012. The 2014 Class IV average now stands at $22.58, up from $18.82 a year ago and $15.84 in 2012.

The California Department of Food and Agriculture (CDFA) announced its November Class 4b cheese milk price at $18.70 per cwt., down $2.24 from October but still $1.40 above November 2013. The Class 4a butter-powder milk price is $18.14, down $3.37 from October, $2.49 below a year ago, and the lowest it has been since April 2013.

The 4b average now stands at $20.40, up from $16.28 at this time a year ago, $15.47 in 2012, and compares to the FO Class III average of $22.75. The 4a average now stands at $22.49, up from $18.64 a year ago and $15.46 in 2012.

The FO Class III and California 4b price gap will likely pour gasoline on the Federal order fires in California. The gap this year has ranged from a low of 84 cents in January to the high of $3.24 in November. It averaged $2.35 for the first 11 months of 2014, up from a $1.63 average gap in the same period a year ago, and compares to $1.87 in 2012 and $1.85 in 2011, and the gaps occurred despite state mandated price enhancements which ran July 2013-June 2014.

The Milk Producers Council’s Rob Vandenheuvel told DairyBusiness Update, "Whether milk prices are rising or falling, one thing remains constant: the exorbitant state-sponsored discount on California milk sold to California cheese manufacturers. This week we were once again reminded of this ‘cheap-milk’ policy administered by the California Department of Food and Agriculture, as the California Class 4b price in November was $3.24 per cwt. below the national Federal Order Class III price. Change can’t come fast enough."

When asked about the slow progress to a Federal order, Vandenheuvel said, "The lengthy time it has taken to get the petition drafted is due to many complex issues with California. Quota is certainly one of those issues," he said. "But I don’t believe it’s feet dragging, but rather a lot of coordination with USDA and CDFA in how to properly administer the quota program in a Federal order."