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Dairy Economy Roller Coaster Continuing Through Summer

September 2, 2020

The monthly margin under the Dairy Margin Coverage (DMC) program for July was $12.41 per cwt. This was an increase of $2.42 per cwt. from the June margin. The milk price increased by $2.40 per cwt., from $18.10 per cwt. in June to $20.50 per cwt. in July. The feed cost calculation for July was just $0.02 per cwt. lower than in June.

Since March, the milk price has been by far the most volatile component of the DMC margin, showing month-to month changes, either down or up, that have averaged $2.83 per cwt. By contrast, the monthly changes in the feed cost component have averaged just $0.19 per cwt., and have been all declines, during that same period. Even the individual items in the feed cost formula have been relatively stable, with monthly price changes since March averaging, on a per hundredweight of milk basis, $0.15 for corn, $0.05 for soybean meal, $0.04 for all alfalfa, and $0.06 for dairy-quality alfalfa.

The pandemic is not yet through gyrating the milk price. Current dairy futures anticipatie a drop of well over $3 per hundredweight in the U.S. average all-milk price during the two months from July to September. The milk price outlook for the fall months has weakened in recent weeks as the second wave of Covid-19 infections continues, darkening the outlook for dairy use in food service and schools, and doing the same for the overall economic outlook. The current delay by Congress in agreeing to another pandemic relief package has added to this uncertainty as well.

The USDA-sponsored DMC Decision Tool is currently anticipating a drop in the margin of $3.30 per cwt. from July to September, with small payments for $9.50 per cwt. coverage occurring in both September and October, as shown in the chart below.

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