Does Dairy Margin Coverage Help Reduce Producer Income Variability?

Grants and Contracts Details

Description

Cooperative Research Agreement: # [Obtained from AFM by MTED/OD] Cooperative Agreement Duration: One year TITLE: Does Dairy Margin Coverage Help Reduce Producer Income Variability? OBJECTIVE: Investigate the relationship between producer election into the Dairy Margin Coverage (DMC) program and selected coverage rate and impact on producer income variability. The results of this research will be informative to policymakers on the importance of the program in mitigating producer risk. APPROACH: The Dairy Margin Coverage (DMC) program was authorized in the 2018 Farm Bill as a voluntary program that protects dairy producers when the difference between the U.S. all-milk price and a national feed cost value (as calculated by a formula) falls below a certain dollar amount selected by the dairy farmer. Producers can select coverage levels between $4.00 and $9.50 per cwt for 5 to 90 percent of their production history1. While dairy operations of all sizes can utilize the DMC program, some higher coverage levels and more attractive premium rates are only available on production history up to 5 million lbs annually. To estimate the risk reduction impact of the DMC program, a simulation approach will be utilized to estimate the variation in producer income (milk price over estimated feed costs) with, and without, enrollment in the program. In order to fully evaluate the potential options available to an individual dairy producer, this will be done for multiple coverage levels between $4 and $9.50. Findings will also be relevant for larger dairies that choose to cover a smaller proportion of their current production levels. Historical milk and feed price cost data will be examined to understand relationships between relevant variables and farm-level milk and feed values. These relationships will be utilized in conjunction with baseline forecasts in order to make the risk analysis forward-looking and relevant for future decision making. If data availability allows, the analysis may be expanded beyond the national level by considering differences in milk and feed prices in different regions of the US. STATEMENT OF MUTUAL INTEREST: ERS is responsible, through its Market and Trade Economics, Food Economics, and Resource and Rural Economic Divisions, for conducting research on a wide range of issues related to agricultural policy, farm income, and trade, including their impacts on climate. The University of Kentucky is an institution of higher learning with an economics program whose faculty is 1 See Farm Service Agency’s DMC webpage: https://www.fsa.usda.gov/programs-and-services/dairy-margin-coverage-program/index. interested in advancing knowledge related to agricultural policy, farm management, and applied economics. Both parties are actively engaged in researching the issues in agriculture and risk management with the intention of the results of the work to inform public policy. Key aspects of the research include the issues of risk management and policy analysis where the understanding of the impacts of available risk management tools and policies is important. The parties agree that meeting the objectives of this project will strengthen and enhance ongoing research within these areas. THE COOPERATOR AGREES TO: 1. Work with ERS to identify the research plan 2. In collaboration with ERS staff, execute the research plan 3. Write up the results of the research 4. Submit the results for publication in a Tier I or Tier II journal 5. Incorporate the results into extension programming 6. Provide the sources of data used along with software script for replication purposes 7. Prepare quarterly written reports to ERS regarding progress on the above research. ERS AGREES TO: 1. Assist the Cooperator in formulating and executing the research plan 2. Pay travel and per diem expenses of ERS employees. 3. Provide necessary office space, office equipment, and supplies for ERS employees assigned to the project. 4. Write up a summary of research results for publication in internal ERS outlets (EIB, Amber Waves, and Chart of Note) MUTUAL AGREEMENTS: Auto-generated by AIMS system. CONTACT INFORMATION FOR ERS AND THE COOPERATOR: Agency Section: Contact: Toshiro Settles USDA, ARS, EAD [address, phone, and fax in AIMS system] ERS/PI: Brian Williams USDA, ERS Agency Finance Office: David Lee USDA, ERS [address, phone, and fax in AIMS system] Cooperator Contact Information: Cooperator/Sponsor/Recipient (Sponsored Programs Office) Name: Kim Carter Title: Associate Vice President for Research and Executive Director Institution: University of Kentucky Address: 109 Kinkead Hall, Lexington, KY 40546 E-mail: [email protected] Telephone: 859-257-9420 Cooperator/Sponsor/Recipient Designated Representative (PI) Name of Investigator: Kenneth H. Burdine Title: Extension Professor Institution: University of Kentucky Department of Agricultural Economics Address: 415 Charles E. Barnhart Building, Lexington, KY 40546-0276 E-mail: [email protected] Telephone: (859) 257-7273 Cooperator/Sponsor/Recipient Designated Representative (Co-PI) Name of Investigator: Tyler B. Mark Title: Associate Professor Institution: University of Kentucky Department of Agricultural Economics Address: 417 Charles E. Barnhart Building, Lexington, KY 40546-0276 E-mail: [email protected] Telephone: (859) 257-7283
StatusActive
Effective start/end date9/13/239/30/25

Funding

  • Economic Research Service: $25,000.00

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