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DMC Returns to Payments in August

October 6, 2022

Falling milk prices and rising feed costs pushed margins in August under the federal Dairy Margin Coverage Program to levels that are triggering payments for the first time this year.

The August Dairy Margin Coverage margin was $8.08/cwt, down $1.84/cwt from July’s margin and generating a payment of $1.42/cwt for Tier 1 coverage at $9.50/cwt under DMC, the main federal payment program for dairy producers. The August U.S. average all-milk prices of $24.30/cwt was $1.40/cwt lower than the previous month; meanwhile, the DMC feed cost rose $0.44/cwt from the previous month to $16.22/cwt.

August’s milk-price drop was the third consecutive monthly after a streak of record high U.S. average milk prices that ended in May. Feed costs, meanwhile, reached a second straight monthly record in August. The three cost components of the feed formula have all generally contributed to its steady rise during the past ten months, but the price of corn was the main driver this spring, while soybean meal and premium alfalfa hay prices have taken over this lead role during the past two months.

Available forecasts currently indicate that small margin coverage payments may be generated for $9.50/cwt coverage during the remaining months of 2022. 17,776 dairy operations are currently enrolled in the Dairy Margin Coverage program. The decline in margins to payment-trigger levels, unexpected earlier in the year, underscores the affordability and value of DMC. The August payment alone would cover about three-quarters of the single-year annual premium for $9.50 Tier I coverage for an enrolled operation.