The purpose of the proposed Dairy Market Stabilization Program (DMSP) is to shorten the duration of low-margin periods and reduce government outlays on dairy margin insurance. However, DMSP can only achieve those goals if producer participation in the proposed dairy safety net is sufficiently high. In 2012, farms with over 1,000 cows accounted for only 2.9% of operations but produced 50.6% of the milk. Therefore, it is of particular interest to understand views of large herd operators regarding participation in proposed dairy programs. To that end, a survey was conducted of dairy farm manager participants at the Dairy Today magazine’s 2013 Elite Producer Business Conference held on November 11-13 in Las Vegas. Eighty-six surveys were completed. The respondents averaged a herd size of 3,351 cows and 2,449 acres of operating farmland.

DMAPParticipation

To examine the influence of program implementation rules on participation rate, participation likelihood was measured under two scenarios: 1) sign up by January 15 for the calendar year that just began and 2) sign-up by March 15 for the forthcoming fiscal year (Oct 1 – Sep 30). Both implementation rules provide the same inherent risk protection effectiveness, but the former rule allows producers to utilize more information about how much risk they will likely face. A sign-up rule that essentially coincides with the start date allows producers to use easily, and more reliably forecasted margins to strategically adjust margin coverage levels. Thus, they can choose less insurance when risks seem small, and buy high coverage levels when low margins are imminent.

For a January 15 signup date for a calendar year program, the share of survey respondents either neutral or leaning towards participating in the Senate and the House versions of the dairy title was 66% and 78%, respectively. Assuming March 15 as the signup date for a fiscal year program, the share of producers neutral or leaning towards participation was 55% and is equal for both the House and the Senate versions of the bill. One way to interpret this is that up to 20% of large producers did not perceive the new safety net as necessary for viability of their business, but would be willing to engage in opportunistic participation in some programs if there are gains to be made.

This survey provides only limited evidence on stated attitudes of large herd operators; nevertheless, it is possible to make at least partially informed or conjectural projections of a U.S. participation rate. If we assume that all producers leaning positive will participate in the Farm bill dairy programs, and that half of undecided producers will also sign up, between 35% and 47% of large herd operators would sign up for the Senate version of the dairy programs, but the House version would see enrollment between 40% and 57%. Because both programs offer higher margin insurance subsidies for the first four million pounds of milk, it is reasonable to assume that participation rate among producers with smaller herds will be higher. If 85% of producers with herds under 200 cows sign up, and if assume participation rate of producers with herds between 200 and 1,000 cows is 1.5 times the surveyed participation rate of large herd operators, then we can estimate that the total participation in the Senate proposed dairy programs will be 50% of U.S. milk production, if the program is implemented with a March 15 sign up date for a fiscal year coverage period. For the alternative scenario of a January 15 sign up date and a calendar year insurance period, the speculative estimate is that slightly over 60% of U.S. milk would sign up. Bear in mind that market conditions at signup, the extent to which respondents really do as they stated in the survey, implementation details, and any program changes that might occur in conference committee will likely have significant effects on participation rates. Perhaps the best way to view these results is as a prior or preliminary estimate that will be updated as new information arrives.

Read more in the DMAP Briefing Paper Chris Wolf and I released today.

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