This article was updated on February 15, 2022 with the new March 25 enrollment deadline.
Dairy Margin Coverage (DMC) is a voluntary risk management program authorized by the 2018 Farm Bill that pays participating dairy producers when the difference (the margin) between the national price of milk and the average cost of feed falls below a certain level selected by the program participants. Historically, the milk margin has fallen below $9.50 per hundredweight in 15 of the last 22 months (see yellow bars in the figure below), triggering payments for farms that enrolled at the $9.50 coverage level. The enrollment period for coverage in 2022 runs from December 13, 2021 until March 25, 2022. For more details about the program, or to enroll, contact your local Farm Service Agency. Additional information can be found on the DMC program website.
Program Changes
Two recent updates may make the DMC program more appealing to some producers in 2022. First, according to USDA, the program is “changing the DMC feed cost formula to better reflect the actual cost dairy farmers pay for high-quality alfalfa hay.” Going forward, FSA will use the price of premium alfalfa hay for 100% of the alfalfa included in the ration, up from 50%. This change will increase the cost of the feed ration used to calculate the dairy margin. As a result, this will increase program payments relative to past values.
Second, FSA will allow some producers to increase their historic milk production for the first time since the program started in 2014. According to Cornell University Professor of Agricultural Economics Chris Wolf, “this change will be particularly useful for farmers who had less than 5 million pounds of production base under the program but have grown since 2013.” Supplemental DMC Enrollment will allow eligible dairy operations with less than 5 million pounds of established production history to increase their base according to a formula using their actual milk marketed in 2019. Supplemental DMC coverage is applicable to calendar years 2021, 2022, and 2023. Participating dairy operations that increase their base through supplemental enrollment will receive supplemental payments retroactively for 2021. A farm must complete Supplemental DMC Enrollment before enrolling in 2022 DMC coverage.
Decision Tools
The Program on Dairy Markets and Policy provides tools to help dairy farmers decide whether to enroll in the Dairy Margin Coverage program. One such decision aid is a chart that shows the actual dairy margin for the past several years and the forecast dairy margin for the next 12 months. This chart is updated daily to reflect current estimates of future milk and feed values taken from CME Futures prices. The current chart can be viewed here.
As of December 22, the forecast does not predict any payments for most of 2022 given the strong milk price forecast, despite rising input costs. Yet, according to Professor Wolf, “thinking about this as risk management means that it may still be entirely rational to purchase coverage. There have been many years in the past where payments did not look likely at this time the previous year but materialized because of weather or other supply or demand shocks. Historically, the DMC program has been a net positive in almost every year (2014 being the exception).”
Farms can also use an interactive DMC decision tool on the Program on Dairy Markets and Policy website to make coverage selections and view forecast results. This tool shows Net Benefit Forecasts, Price Forecasts, Historic Performance, and a Milk Price Trigger Analysis based on the selected coverage levels. This tool is free and available here. If you would like assistance using this tool, contact your local Cornell Cooperative Extension office.
Now is the time to consider whether to include Dairy Margin Coverage as part of your risk management strategy in 2022, and, if so, the level of coverage that best meets your needs.
