Dairy Risk Management & Farm Bill

Dairy Risk Management

Dairy farmers now have an improved range of risk-management tools to help them deal with the increased volatility of milk prices and feed costs, as well as additional resources expected soon from the USDA in response to the coronavirus crisis.

Central to current dairy support is the new Dairy Margin Coverage (DMC) program, created in the 2018 Farm Bill, which gives farmers higher levels of assistance at more affordable prices. Farmers also have expanded access to the Livestock Gross Management (LGM) program and the Dairy-Revenue Protection (Dairy-RP) program. This page provides an overview of what the U.S. Department of Agriculture is providing, along with resources that help farmers and inform the public about the safety net established in the Farm Bill as well as additional federal support as it becomes available.

The basic dairy support program is the Dairy Margin Coverage program developed as part of the 2018 Farm Bill, which offers

  • Affordable higher coverage levels that will permit all dairy producers to insure margins up to $9.50/cwt. on their first five million pounds of milk based on their production history.
  • Affordable $5.00 coverage that lowers premium costs by roughly 88 percent from the previous margin-protection program.
  • Greater flexibility to participate in DMC, LGM and Dairy-RP, which are additional safety-net tools that help producers of all sizes choose programs that best fit their needs.

The USDA offers a decision tool to help in DMC planning.

Dairy Margin Coverage

The Dairy Margin Coverage program was developed as part of the 2018 Farm Bill with the assistance of NMPF as a response to the flaws of the previous Margin Protection Program, which didn’t adequately assist farmers through multiple years of low prices beginning in 2015.

DMC reforms include:

  • Affordable higher coverage levels that will permit all dairy producers to insure margins above $8.00 on their Tier 1 (first five million pounds) production history, the previous limit under the Margin Protection Program. The higher $9.50/cwt coverage will give producers a greater opportunity for assistance.
  • The feed cost formula has been improved to include dairy quality hay values, which better reflects the true cost of feeding dairy cows.
  • Affordable $5.00 coverage that lowers premium costs by roughly 88 percent. This aids larger producers, creating a baseline for meaningful catastrophic coverage at a reasonable cost without distorting the market signals needed to balance supply with demand.
  • Greater flexibility to participate in DMC, LGM and Dairy-RP, which helps producers of all sizes choose programs that best fit their needs.

Sign-up for the 2021 DMC begins October 13, 2020. All dairy farmers who want 2021 coverage must visit their local USDA Service Center office to pay the annual administrative fee, which is $100 for the lowest level catastrophic coverage. Enrollment runs through December 11.

NMPF is offering this site as a resource for producers, with additional materials giving farmers aid in making informed decisions that will help them survive tough times — and thrive in future years.

 

About the Dairy Margin Coverage (DMC) Program

With the ongoing COVID-19 crisis teaching hard lessons on risk management throughout agriculture, and with dairy margins expected to be volatile over the next year, the National Milk Producers Federation (NMPF) urges farmers to sign up for maximum coverage under the Dairy Margin Coverage (DMC) program.

DMC is designed to ensure that dairy farmers can protect themselves against financial catastrophe. Despite forecasts in late 2019 predicting that DMC was unlikely to generate payments in 2020, margins fell to their lowest levels in more than a decade in the first half of this year, triggering payments that kept many dairies afloat. DMC coverage offers certainty in times of need, allowing for better financial planning and faster payment when necessary.

Enrollment for the 2021 DMC program year starts Oct. 12 and runs through Dec. 11. See below and visit USDA’s Farm Service Agency’s DMC page for more information.

 

ELIGIBILITY

All U.S. dairy operations are eligible for DMC. An operation can be run either by a single producer or multiple producers who commercially produce and market milk. Each producer on an operation must share the risk of producing milk and make contributions (including land, labor, management, equipment, or capital) to the dairy’s operation at least equal to the individual or entity’s share of the operation’s proceeds.

An eligible dairy operation must:

  • Have a production history determined by USDA’s Farm Service Agency (FSA).
  • Be registered to participate during a signup announced by FSA.
  • Pay a $100 administrative fee annually for each year of participation, except if the dairy operation qualifies for a waiver for limited resource, beginning, socially disadvantaged, or veteran farmers and ranchers.

A dairy operated by more than one producer still will be registered as a single operation. Producers who operate two or more dairiesneed to register each operation separately to cover that operation.

Eligible DMC participants are also eligible to participate in the Livestock Gross Margin for Dairy Producers Program and the Dairy Revenue Protection Program. Both are administered by the USDA Risk Management Agency.

 

COVERAGE LEVELS

Producers have multiple options for coverage each year. Basic catastrophic coverage of $4/cwt. is free, except for the $100 annual administrative fee. Farms can insure their first 5 million pounds of milk production history, designated as Tier I, in 50-cent increments from $4/cwt. up to $9.50/cwt.  Annual production above 5 million pounds falls into Tier II. Coverage options in Tier II range from $4/cwt. to $8/cwt. Producers must also select a coverage percentage of the dairy operation’s production history ranging from 5 percent to 95 percent, in 5-percent increments.

The following table provides the premiums schedule.

 

HOW TO APPLY

FSA opens enrollment for DMC on Oct. 13 for calendar year 2021. The deadline to enroll for 2021 coverage is Dec. 11.

All dairy farmers who want 2021 coverage must visit their local USDA Service Center office to pay the annual administrative fee, which is $100 for the lowest level catastrophic coverage. Producers must visit their local office even if they locked in coverage for five years to take advantage of the 25% premium discount offered the first year of the program.

 

ADDITIONAL SUPPORT

USDA offers a variety of programs that have helped dairy producers in addition to DMC, including insurance, disaster assistance, and conservation programs. Most recently, the first round of aid under the Coronavirus Food Assistance Program provided $1.75 billion in direct relief to dairy producers who faced price declines and additional marketing costs due to COVID-19 in early 2020. Signup is now underway for a second round of CFAP payments, offering further assistance for dairy producers and many other eligible producers.

 

ADDITIONAL RESOURCES

For more information, visit the farmers.gov DMC webpage, or contact your local USDA Service Center. To locate your local FSA office, visit farmers.gov/service-center-locator.

Other Dairy Assistance Programs

Livestock Gross Margin (LGM) Insurance
Dairy Revenue Protection (Dairy-RP)

Frequently Asked Questions: Margin Protection Payments

How will payments be calculated under the program?
Has the feed cost formula been modified?
When will I be eligible for a payment?