NMPF Senior Vice President Chris Galen reminds farmers of the upcoming Dec. 9 deadline to enroll in the Dairy Margin Coverage Program in an interview with the National Association of Farm Broadcasters. This year’s payments under the program — the result of high input costs eating into record prices — show the wisdom of DMC’s design, Galen said. “As we head into 2023, we know that milk prices aren’t going to be as strong,” Galen said. “We know that input costs are still going to be significant.”
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.
The average milk price in the United States dropped by $0.40/cwt in June from May’s all-time record level to $26.90/cwt. The Dairy Margin Coverage margin also fell by $0. 59/cwt from May to June, driven by a June feed cost that rose $0.19/cwt from the month before.
The milk price outlook for the remainder of 2022 has weakened in recent weeks, as dairy product price inflation has taken a toll on both retail and food service consumption. Since June 1, the futures-based average milk price forecast for the months of June through December has dropped by more than $2/cwt. Despite this, the futures do not currently indicate the DMC margins will drop below $11/cwt anytime during the remaining months of 2022. The DMC Decision Tool on the USDA/FSA website, on the other hand, is currently showing a much lower price forecast and a higher feed cost outlook, with margins falling slightly below $9.50/cwt during most of the months of July through November.
Dairy producers from NMPF member cooperatives nationwide are playing prominent roles in House Agriculture Committee listening session as the panel begins work toward the 2023 Farm Bill seizing the opportunity to elevate dairy priorities on farm policy, trade, sustainability and other issues.
Jim Boyle, a United Dairymen of Arizona member from Casa Grande, spoke at a session hosted by Rep. Tom O’Halleran (D-AZ) on June 25 in Coolidge, where he emphasized the need for more equitable treatment of dairy farmers of all sizes, including in pandemic relief programs to reimburse dairy farmers for COVID-19 losses. NMPF is working closely with Congress to provide additional reimbursements to producers participating the USDA’s Pandemic Market Volatility Assistance Program whose payments bumped against the program’s initial five-million-pound production cap.
Two NMPF board members also participated in a California session hosted by Rep. Jim Costa (D-CA) on July 7 in Fresno. Melvin Medeiros, a Dairy Farmers of America producer from Laton who sits on NMPF’s Executive Committee, and Joey Fernandes, a Land O’Lakes producer and NMPF board member from Tulare, urged Congress to craft policies that boost exports and aids dairy producers of all sizes in all regions.
On July 22, Northwest Dairy Association/Darigold board member Jeremy Visser and former NMPF board member Jim Werkhoven, also an NDA/Darigold member, spoke at a listening session in Carnation, Washington, held by Rep. Kim Schrier (D-WA). Visser and Werkhoven urged the committee to ensure that risk management tools work effectively for farmers of all sizes and urged robust funding for trade promotion programs, including the Market Access Program.
The committee’s final listening session of July took place in Northfield, Minnesota on July 25 at an event hosted by Rep. Angie Craig (D-MN). Steve Schlangen, Chairman of Associated Milk Producers Inc. and an NMPF executive committee member, emphasized the value the Dairy Margin Coverage program has provided to producers and urged the committee to strengthen the program. Charles Krause, a DFA farmer from Buffalo, MN, and KC Graner, a Land O’Lakes ag retail member-owner from Truman, highlighted topics including the Dairy Donation Program to provide dairy products to food insecure families and additional funding and policies to encourage and scale climate-smart ag practices.
“From trade, to sustainability, to providing an adequate safety net to producers of all sizes, the farmers who own NMPF’s member cooperatives are critical to conversations that affect all of agriculture in the next Farm Bill and beyond,” said Jim Mulhern, president and CEO of NMPF. “We commend our members from around the country for sharing their insights and thank Congress for making sure that dairy’s voice is heard as the next Farm Bill begins taking shape.”
The USDA-reported national average all-milk price for May was $27.30/cwt, topping the April price by $0.20/cwt for a new monthly record, the third consecutive month of all-time-high prices.
The May DMC feed cost eased back by two cents from April’s record to $14.79/cwt, boosting the May DMC margin by $0.22/cwt to $12.51/cwt, the highest monthly margin since the DMC program began in January 2019.
The milk price outlook for the remainder of 2022 has been weakening slightly in recent weeks, as high dairy product wholesale prices have caused a spike in retail dairy price inflation, generating concerns about whether consumers may respond by buying fewer dairy products. All current projections of the DMC margin continue to anticipate that it will remain above the $9.50/cwt maximum coverage level under the program for the remainder of 2022.
Seventh-generation Pennsylvania dairy farmer Lolly Lesher emphasized the importance of farm bill safety net programs and called for milk pricing improvements at a House Agriculture Committee hearing held on June 22 to review the dairy provisions of the farm bill.
The Farm Bill, a twice-a-decade reauthorization of USDA programs, includes provisions important to dairy farmers such as risk management, pricing policy and support, conservation, trade promotion, nutrition, and rural development programs.
“The Dairy Margin Coverage (DMC) program is a significant improvement over its predecessor and has been a strong safety net for dairy farmers during difficult times. It offers producers affordable coverage for margin levels that reflect the milk price and feed cost challenges they face,” Lesher said in her testimony.
Lesher, a member-owner of Dairy Farmers of America, testified on NMPF’s behalf. She thanked Ranking Member G.T. Thompson (R-PA) for his years of advocacy on behalf of dairy farmers in Pennsylvania and beyond, and for his key role in overhauling the dairy safety net during the last farm bill. She also expressed her gratitude to Chairman David Scott (D-GA) for his work and for convening the hearing.
Created to replace the previous Margin Protection Program at NMPF’s urging in the 2018 Farm Bill, USDA’s Dairy Margin Coverage program offers effective margin protection for small and mid-sized farms and affordable catastrophic coverage for large farms. Lesher, whose family milks 240 cows in southeastern Pennsylvania, said in her written testimony that the program “has provided important security to [her] family’s farm” and noted that her family has purchased the maximum available coverage every year.
She also urged the committee to make additional updates to reflect current production. Congress enacted Supplemental Dairy Margin coverage payments to account for modest production increases since 2014, and Lesher urged the committee to build on this progress in the next farm bill.
Lesher highlighted the need for improvements to the Federal Milk Marketing Order (FMMO) system, citing the heavy revenue losses incurred by dairy farmers nationwide from a milk pricing change made in the previous farm bill as an example of the need for change.
“The change made to the Class I mover combined with the government’s heavy cheese purchases cost dairy farmers over $750 million in revenue in the last six months of 2020 alone,” she said. Lesher detailed the asymmetric risk that farmers bear under the current mover, with limited upside risk and a potentially limitless downside.
Meanwhile, NMPF is leading a nationwide effort to craft consensus on a wide range of FMMO improvements, including the Class I mover, that can be taken to USDA for consideration in a federal order hearing. “We recognize that for our efforts to succeed, we must all work together, giving a bit to get a bit. It’s just too important for our future,” Lesher added.
“We appreciate the opportunity to share what has worked well—and what needs to be modernized—to meet the needs of dairy farmers in the 2023 Farm Bill,” said Jim Mulhern, president and CEO of NMPF. “As Lolly Lesher outlined during today’s hearing, dairy producers need continued access to an effective safety net, flexible risk management tools that protect all farmers, and an update to the FMMO system that addresses the unequal risk dairy farmers bear compared to processors during unusual market volatility. We look forward to our continued work with the House Agriculture Committee and USDA on these and other farm bill priorities in the coming months.”
NMPF Senior Vice President for Communications, Alan Bjerga, discusses dairy issues ranging from pricing to fake milk with KASM radio of Albany, MN, at the National Association of Farm Broadcasters Issues Forum in Washington, DC. Record milk prices are coming with higher costs as well; meanwhile, NMPF is positioned to lead on Federal Milk Marketing Order modernization, a farmer-led process.
The second highest monthly surge in feed costs since the emergence of margin protection as the main federal safety net for farmers lowered the Dairy Margin Coverage Program margin by $0.34/cwt, to $11.20/cwt, in February.
Steady increases in feed costs for the past year and a half were kicked into a yet higher gear by the developing Russia-Ukraine situation, raising fears of reduced global grain production. The February DMC feed cost was $13.50/cwt, up $0.84/cwt from a month earlier and the highest since the introduction of margin protection in 2014. Two-thirds of this increase came from a jump in the price received by U.S. farmers for corn.
Offsetting the jump somewhat – but not enough – was an increase of the U.S. average all-milk price by $0.50/cwt to $24.70/cwt.
The dairy and grain futures markets currently indicate the DMC margin will gradually increase during the remainder of 2022.
NMPF Senior Vice President of Communications Alan Bjerga explains how the Dairy Margin Coverage Program helps protect farmers against rising feed-cost inflation by factoring in higher expenses even as milk prices reach records. Bjerga also talks about the potential market effects of Russia’s invasion of Ukraine and spells his last name for listeners in an interview with WEKZ radio, Janesville, Wisconsin.
Statement from NMPF President and CEO Jim Mulhern on USDA’s Extension of 2022 DMC Signup:
“Dairy farmers thank USDA and Secretary Vilsack for extending signup for this year’s Dairy Margin Coverage Program in order to maximize producer signup for this important program. DMC offers cost-effective margin protection for small and medium-sized producers and inexpensive catastrophic coverage for larger dairies. It provides critical protection against unforeseen market disruptions – and if the past two years have shown anything, it’s that unforeseen market disruptions can happen. We urge all producers to sign up for DMC protection, part of a suite of NMPF-supported, federally backed risk-management that also includes the Dairy-RP and LGM-Dairy programs.”
For more information on DMC and NMPF’s support for effective risk management, visit NMPF’s website here.
2021 narrowly missed being the first calendar year during which the Dairy Margin Coverage program would have made payments at the maximum $9.50/cwt coverage level during every month. But a milk-price surge prevented that from happening.
The December margin under the program was $9.53/cwt, $0.39/cwt. higher than November’s margin and above the threshold needed to trigger payments at the maximum coverage level. From November to December, the all-milk price gained $1.00/cwt, to $21.80/cwt, while the DMC feed cost gained $0.61/cwt. On a per hundredweight of milk basis, half of the feed-cost increase was from higher soybean meal prices, one-third from higher corn prices, and one-sixth from higher premium alfalfa prices.
Late January dairy and grain futures continued to indicate a very small likelihood for payments during 2022; still, the generally strong milk price outlook has shown volatility in recent weeks, and grain prices have been showing renewed strength.
Signup for the 2022 DMC program is underway and will close on Feb. 18. Last year’s program has paid out nearly $1.2 billion to 18,800 enrolled operations as of Jan. 31. NMPF is urging dairy farmers who haven’t yet joined DMC to do so. NMPF has a page of resources for members who may have questions here.
