Despite Low Milk Prices, New Insurance Program Isn’t Helping Farmers

Jul 10, 2015

The boom and bust cycle of milk prices continues to affect Vermont dairy farmers and the past year has been a prime example. Prices have dropped from historic highs to levels at or below the cost of producing the milk.

Despite the falling prices, a new insurance program designed to protect farmers hasn’t kicked in.

Last year, dairy farmers like David Silloway of Randolph Center were urged to enroll in the Margin Protection Program (MPP) when it was first introduced. The new program operates like an insurance policy to protect farmers from losing money on milk production.

Now that prices have dropped, Silloway has seen his profits disappear but the insurance hasn’t kicked in. 

He has plenty of company.

Tight margins

Deputy Secretary of Agriculture Diane Bothfeld  says for what farmers are now receiving for milk – around $16.50 per hundredweight – they’re either barely meeting their costs or losing money.

“We talk about a range somewhere between $16 to $20, if not higher, for the cost of production. At $16.50 it’s very tight for many farms,” she says.

Despite the situation, Bothfeld says no Vermont farmers have been able to take advantage of the MPP benefits. That’s because it pays out based on the cost of production, using not just milk prices, but comparing them with feed prices.

Despite the situation, Deputy Secretary of Agriculture Diane Bothfeld says no farmers have been able to take advantage of the MPP benefits.

The basic, most affordable, policy is pegged to a $4 difference.

If the difference between the price of milk and the price of feed is under $4 — in other words, feed costs are basically cancelling out a big chunk of what the farmer is getting for milk — the insurance kicks in. At this level, it’s considered catastrophic coverage.

Farmers on their own

Those who want to guarantee themselves more money to pay the bills bought policies triggered when feed prices aren’t as close to milk prices. 

Each farm had to crunch its own number to determine which policy to buy.

“It’s a brand new program and I think this is the first real trial run,” says Bothfeld.

Bothfeld says so far, the margin between feed and milk prices hasn’t been close enough to trigger coverage other than for the highest priced policies, which no one in Vermont purchased. Yet at today’s prices, farmers could use the help. 

So far, the margin between feed and milk prices hasn't been close enough to trigger even the best coverage, which no one in Vermont purchased. Yet at today's prices, farmers could use the help.

The feed price calculation is based on how much alfalfa, soy and corn it takes to produce 100 pounds of milk. The insurance is based on a national feed price, and feed is more expensive in the Northeast, so the margin on paper doesn’t reflect the actual margin for Vermont farmers.

Nor does the program take into account other expenses, for example, those related to wet weather.

So, Vermont dairy farmers are on their own, for the moment, to make it through the current cycle of low prices.

Market forces and dumping milk

An unusual number of number of factors is contributing to a surplus of fluid milk that’s driving down the price. The situation is such that processors are actually dumping milk once they’ve removed the more marketable cream.

Ben Laine is an economist with Agri-Mark dairy co-operative, which has had to dump milk. He says overseas demand, which is critical to milk producers, is down for both economic and geopolitical reasons.    

“The big one is Russia with their embargoes. China’s purchasing has slowed down. They’re always a big factor,” he says.

The situation is such that processors are actually dumping milk once they've removed the more marketable cream.

Other reasons for the milk glut include an increase in production by farmers when prices were high and the summer lull in milk consumption.

Leon Berthiaume, general manager of St. Albans Co-op, says he has had to dump milk which in the past the co-op could have shipped elsewhere for processing. He says that’s not an option now because other processors are operating at capacity, too.  

Berthiaume says some of his co-op’s customers have moved their processing to other parts of the country, further reducing demand for Vermont milk.

Dairy farmer David Silloway is philosophical about the situation.

His family has weathered the ups and downs of farming since the 1940s. He says they’ll get through thanks to the income from selling firewood and maple syrup.

An earlier version of this story stated that no farmers had received coverage benefits based on current milk and feed prices. In reality, no Vermont farmers purchased a level of coverage that triggered the benefits.  Some farmers in other parts of the country have received benefits.