USDA’s announcement that it was modifying the feed-cost calculation for the DMC margins to reflect the cost of dairy-quality alfalfa hay has offered additional assistance for producers who sign up for the program.

Under USDA’s formula, the department will use the simple average of the U.S. average price received by farmers for all alfalfa hay and the average price received in the five largest milk-producing states for premium and supreme grade alfalfa hay. That’s a change from the previous Margin Protection Program, which used only the lower U.S. average price for all alfalfa hay. The change will increase the calculated DMC feed costs for the first five months of the year by an average of 21 cents per hundredweight of milk, which reduces the DMC margin by the corresponding amount. This will generate larger payments for program participants whose coverage level is high enough to trigger compensation.

The National Milk Producers Federation has long urged USDA to calculate the margins using the cost of higher quality alfalfa used in dairy feed rations and secured a provision in last year’s farm bill directing the department to collect and report the necessary data. In its announcement, USDA stated that the change would “provide a total feed cost that more closely aligns with hay rations used by many producers.”

The DMC margin for May is $9.00 per cwt, generating a payment for the month of 50 cents per cwt for producers who purchase coverage for 2019 at the DMC maximum level of $9.50 per cwt, for up to 5 million pounds of production history. May’s DMC margin was $0.18 per cwt higher than April’s, resulting from a $0.30 per cwt higher milk price and $0.12 per cwt higher feed cost.

USDA’s DMC Decision Tool, which assists producers in making their program enrollment decisions, has been updated to reflect the recent change to the feed cost calculation. As of June 28^th, the tool, which can be accessed online, was projecting margins that would generate payments that average $0.49 per cwt., net of estimated federal sequestration, for all of 2019 to producers who sign up for $9.50 per cwt coverage on up to 5 million pounds of production history. Coverage at this level costs $0.15 per cwt for the year.

The NMPF’s DMC information page on its website offers a variety of educational resources to help farmers make better use of the program.

Signup for the long-awaited Dairy Margin Coverage program began June 17, including a late change to DMC feed-cost calculations that will bring dairy farmers millions of dollars in additional aid and that NMPF had been quietly advocating with the White House and USDA for months. More than 5,000 dairy farmers signed up for the program in its first 10 days, according to USDA.

The 2018 Farm Bill created the DMC program, which replaces the Margin Protection Program for Dairy. The program protects dairy producers when the difference between the milk prices and feed costs (the margin) falls below a certain dollar level of coverage selected by the producer. The USDA’s decision to include the cost of high-quality alfalfa feed in the payment calculations, announced shortly before signup began, increases calculated feed costs and thus lowers margins, triggering higher payments to producers. The decision will be a boon for dairy farmers facing a fifth year of low prices.

“The DMC provides a stronger safety net for America’s dairy producers, one sorely needed as low prices, trade disturbances and chaotic weather patterns combine to create hardships,” said Jim Mulhern, president and CEO of the NMPF. “We have advocated for months that margin calculations must consider the higher feed costs dairy producers pay to properly nourish their livestock. USDA’s decision to include premium and supreme quality alfalfa feed is appropriate and is another win for dairy farmers that will provide additional, crucial aid.”

Producers may cover up to their first 5 million pounds of milk production history (equivalent to the production of a 215-cow dairy farm) at a margin of up to $9.50 per hundredweight. Payments under the program will be retroactive to January 1. Calculations already made for the first five months of the year show that producers signing up at the $9.50 level would receive payments for each month, with total payments far exceeding the already-set annual premium. All producers will be able to access this affordable coverage regardless of size, and larger producers will have access to significantly more affordable $5.00 catastrophic-type coverage.

As far back as the Farm Bill signing in December 2018, NMPF advocated for USDA to prioritize implementation of the dairy program given the prolonged distress producers have faced.  USDA heeded this call early on and members of Congress gave voice to it as well.  This spring, House Agriculture Committee Chairman Collin Peterson (D-MN) and Rep. Glenn ‘GT’ Thompson (R-PA) as well as Senate Agriculture Committee Ranking Member Debbie Stabenow (D-MI) and Senator Roy Blunt (R-MO) spearheaded bipartisan letters urging USDA to promptly finalize the DMC program in a farmer-friendly manner.

“We very much appreciate USDA Secretary Sonny Perdue sticking with the department’s pledge to make dairy a priority in Farm Bill implementation,” Mulhern said. “And we again want to express our appreciation to Congressional agriculture leaders who worked together on a bi-partisan basis to deliver these program improvements,” he said.

Dairy farmers have begun to receive letters in the mail from USDA’s Farm Service Agency to make them aware of their enrollment and coverage options under the DMC. NMPF looks forward to working closely with USDA to ensure that any remaining producer questions or concerns are addressed as the implementation process unfolds.

NMPF’s Vice President of Economic Policy and Market Research, Peter Vitaliano, discusses the impact of the updated prevented-plant acreage and the Dairy Margin Coverage (DMC) program on the “Adams on Agriculture” podcast.