UNIVERSITY PARK, Pa. -- Many of Pennsylvania's dairy farmers soon will be able to sofen the impact of volatile milk prices, thanks to a national pilot dairy support program being tested in 25 counties.

The Dairy Options Pilot Program (DOPP) trains eligible dairy farmers to use the futures and options markets to stabilize their milk prices and avoid sharp fluctuations. Producers will receive first-hand experience in buying milk "put" options contracts to guarantee a minimum price for their milk.

Funded by the U.S. Department of Agriculture (USDA), the program will be delivered by Penn State Cooperative Extension agents in 25 Pennsylvania counties, in cooperation with the Pennsylvania Department of Agriculture and USDA's Risk Management Agency. Participating producers attend a four-hour training session that explains put options, futures and options markets and how they can be used to "lock in" favorable prices. The program then pays up to 80 percent of the cost of buying the options up to a maximum of 600,000 pounds of milk.

Penn State associate professor of dairy marketing and policy Ken Bailey, DOPP coordinator for Pennsylvania, says it's important that farmers in the eligible counties move quickly to enroll in the program.

"Milk prices have been extremely volatile in recent years, falling in months from record highs to record lows," he says. "Prices are very good right now, but unless dairy farmers 'lock in' these prices through their cooperative or the futures market, they're subject to marketplace whims. So it's critical that Pennsylvania dairy producers take the training and use the program."

The program springs from federal legislators' concerns over the effect of fluctuating dairy prices on farmers as the industry becomes more market-driven. Bailey explains that the program combines educational elements with financial support as producers venture into the futures market.

"The training session starts with a basic overview of the futures market, along with important tips for selecting a broker, such as gauging the broker's understanding of dairy markets, determining his or her overall quality of service and negotiating commissions," Bailey says. "Then we go into the details of the pilot program, presenting the rules and conditions.

"Farmers will have a couple of months to decide if they want to enroll in the program. They can select a broker and buy a put contract that will protect their prices. They decide which months and how much milk will be protected, and the USDA will cover up to 80 percent of all fees for the contract. There are no margin requirements."

Participating counties were selected on the basis of past participation, cow population and milk production. Dairy producers who don't reside in a participating county may enroll in the training, but cannot participate in the pilot program until it comes to their county. Producers should contact their local Penn State Cooperative Extension office for program information.

"Last spring, when we had the pilot program in Tioga and Lebanon Counties, very few people participated," Bailey says. "Farmers could have locked in prices for the fall in June. Then the markets deteriorated and the Class III price fell to a 20-year low. Producers could have protected a lot of their income -- but most didn't take advantage of the opportunity."

Counties included in the pilot program include:

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EDITORS: Contact Ken Bailey at 814-863-8649.

DOPP III Regional Coordinators/Contacts:

Susquehanna/Northeast Region (Tioga, Bradford, and Susquehanna Counties): Craig Williams, 570-724-9120 Gary Hennip, 570-265-2896

Central Region (Centre, Union Counties): Terry Maddox, 814-355-4897 Kenneth Balliet, 570-837-4252

Capital/Southeast Region (Berks, Chester, Cumberland, Franklin, Lancaster, Lebanon, York Counties): Tim Fritz, 610-696-3500, ext. 22 Tim Beck, 717-840-7408

Northeast Region (Erie, Crawford, Mercer, Lawrence, Butler Counties): David Dowler, 814-333-7460 Bill Chess, 724-654-8370

Southwest Region (Westmoreland and Fayette Counties): Gary Sheppard, 724-837-1402 Don Fretts, 724-438-0111

South Central Region (Bedford, Blair, Huntingdon, Juniata, Perry, and Somerset Counties): Dave Swartz, 717-582-5150 Mike Harteis, 814-472-7986

Contacts: Gary Abdullah gxa2@psu.edu 814-863-2708 814-865-1068 fax