The deadline to insure your milk income over feed cost margin through the Dairy Margin Coverage (DMC) program is this Friday, December 11. As of yesterday, 11,166 dairy farms have already signed up for this program, representing nearly half (44.8%) of all dairies in the U.S. with established production history. If you have not yet made a decision about whether to enroll, here are four important factors to consider.
1. Low milk margins have triggered four DMC program payments in 2020.
To enroll in the DMC program, farms must select a coverage level ranging from $4.00 to $9.50 per cwt, in $0.50 increments. Participating farms will receive an indemnity payment in any month when the USDA milk income over feed cost margin falls below the coverage level chosen by the farm. In 2020, the USDA milk margin was $9.15 in March, $6.03 in April, $5.37 in May, and $9.40 in September. As a result, farms that enrolled at the $9.50 coverage level for the 2020 program year have received indemnity payments for each of those four months.
2. The milk margin is projected to fall in the first half of 2021.
October 2020 milk production in the U.S. is up 2.3% over October of last year, and the total number of dairy cows has risen steadily since June. Economic impacts of COVID-19 continue to suppress demand, particularly through restaurant channels. Strong milk production combined with limited and uncertain demand for dairy products does not bode well for milk prices in early 2021. Corn and soy futures are on the rise, and economists predict that rising feed prices will tighten the milk margin. According to Mark Stephenson, University of Wisconsin dairy economist, “feed margins are chasing milk prices, and we could likely see some DMC payments at the $9.50 level next year.”
For a more thorough analysis of the current dairy price outlook, check out this video from Mark Stephenson & Bob Cropp at University of Wisconsin: https://dairymarkets.org/PubPod/Podcast/Outlook/
3. You can use this tool to model historic DMC payments and projected milk price triggers for your farm.
FSA and representatives from the University of Minnesota and the University of Wisconsin have partnered on the development of a DMC decision support tool that helps producers determine the level of coverage under a variety of conditions that will provide them with the strongest financial safety net. It allows farmers to simplify their coverage level selection by combining operation data and other key variables to calculate coverage needs based on price projections.
For an overview on how to use this decision tool, check out Mark Stephenson’s video demonstration:
4. The probability of a net benefit to farms in 2021 for Tier 1 milk covered at the $9.50 level is around 95%.
According to the Dairy Markets & Policy Program, the probability that DMC indemnity payments to farms in 2021 will exceed the cost of the DMC insurance premium for Tier 1 milk is around 95% at the highest coverage level. This analysis does not project the total value of the benefit, but suggests that a net benefit is highly likely. To quote Mark Stephenson, “we’re now at a point where we’re expecting the first half to two-thirds of 2021 could have payments at the $9.50 level. Clearly, markets are volatile and they’re going to change, but even with this we’re anticipating (DMC) payments. We won’t be able to count on CFAP payments next year, but the DMC will be there and so will Dairy-RP.”
If you want to enroll in the Dairy Margin Coverage program for 2021, act fast to contact your local Farm Service Agency office, as the registration deadline is this Friday, December 11. You can find more information about the DMC program on the FSA program website.
