The Effects of the Margin Protection Program for Dairy Producers

The Margin Protection Program for Dairy Producers is a voluntary risk-management program for dairy farmers—it offers protection when the national average margin (the difference between the U.S. all-milk price and the estimated average feed cost) falls below a level selected by the dairy farmer. This study examines the potential impact of the program on average margins and risk at different levels of coverage for both the protected margin ($4.00-$8.00 per hundredweight) and the percentage of production history covered (25-90 percent). Margins are constructed for 13 major production regions, and risk-reduction levels are assessed using regional milk and feed prices as though the program had been in place during 2002-13. Results suggest that small operations (those with a 4-million-pound production history) would have seen increases in average margins and reductions in downside margin risk with more milk covered at higher coverage levels. Larger operations (those with a production history of 20 or 40 million pounds) would have generally seen increases in average margins when protected up to the $6.50 level, with margins being maximized at $6.00 coverage.

Issue Date:
Sep 01 2016
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Series Statement:
Economic Research Report Number 214

 Record created 2017-08-21, last modified 2018-01-23

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