DMC Margin Drops Again in July; Margin Formula to Be Updated
September 2, 2021
USDA has reported the July margin under the Dairy Margin Coverage program at $5.68/cwt, a drop of 56 cents from the June margin and the lowest DMC margin since May 2020. The lower July margin resulted from a $0.50/cwt drop in the U.S. average all-milk price, to $17.90/cwt, and a six-cent per hundredweight higher feed cost. A lower soybean meal price offset a good part of a higher price of corn, while alfalfa hay prices were slightly higher.
USDA announced Aug. 19 that it will “make improvements to the Dairy Margin Coverage safety net program updating the feed cost formula to better reflect the actual cost dairy farmers pay for high quality alfalfa. This change will be retroactive to January 2020 and is expected to provide additional retroactive payments of about $100 million for 2020 and 2021.” Full details will be provided when regulations are published in the coming weeks, but it is expected that the price of alfalfa hay used in the DMC feed cost calculation will be changed, from the current 50-50 blend of the U.S. average price for all alfalfa and the average price of premium and supreme alfalfa hay in the five largest milk producing states, to just the 5-state average for premium and supreme alfalfa.
For the July DMC margin, the change would result in a margin of $5.47/cwt for the month, another 21 cents a hundredweight lower than the margin USDA has preliminarily announced. Averaged over all months from January 2020 through this past July, the change would result in an average $15 per ton higher alfalfa hay price used in the DMC feed cost calculation and a 13.1-cent higher average payment for DMC coverage at $9.50/cwt.
USDA reported that, as of August 30, the 18,992 operations enrolled in this year’s DMC program are expected to receive $669,741,798 in payments based on previously announced margins, or an average of $35,264 per enrolled operation.