DMC Margin Posts Another Sizeable Drop in February

The Dairy Margin Coverage (DMC) program will pay $3.31/cwt for $9.50/cwt coverage in February, based on a margin of $6.19/cwt that month. This was $4.70/cwt less than the margin last November. A milk price drop of $1.50/cwt from a month earlier and a $0.25/cwt rise in the DMC feed cost formula combined to lower the February margin by $1.75/cwt from its level in January.

Available forecasts currently indicate that the monthly DMC margins are close to bottoming out for the year, at around $6.00/cwt in a month or two, followed by a slow rise that will not likely top $9.50/cwt until the fourth quarter. This year will return many times the cost of this very affordable means of managing margin risk.

DMC Program Starts 2023 with Sizeable Payments

The Dairy Margin Coverage (DMC) program made payments for only two of the twelve months last year, but it will pay $1.56/cwt for $9.50/cwt coverage for January. The January margin was $7.94/cwt, $1.82 lower than December’s. A one-month drop of $1.60/cwt in the U.S. average all-milk price, to $23.10/cwt, accounted for most of the margin drop. A monthly rise in the soybean meal price accounted for about two-thirds of the remaining margin fall, but higher corn and premium alfalfa prices contributed lesser amounts as well.

Available forecasts currently indicate that the monthly DMC margins will remain below $9.50/cwt until September and average just below $8/cwt for this entire calendar year. Signing up $9.50/cwt coverage for the first five million pounds is always recommended as a cost-effective risk management strategy. Even last year’s two payments more than covered the annual premium cost for that level of coverage. This year will almost certainly return many times the cost of this very affordable means of managing margin risk.

2022 Ends with No DMC Payments; 2023 May Be Different

The December DMC margin was $9.76/cwt, down $1.13/cwt from the month before but still above the $9.50/cwt threshold for federal payments at the highest insurance level. Much of this decline was contributed by a $0.90/cwt fall in the U.S. average all-milk price, to $24.70/cwt. The DMC December feed cost rose $0.23/cwt from November, on higher corn and soybean meal prices.

The DMC margin fell below the highest coverage level of $9.50/cwt during just two months of 2022, as record high feed costs were generally topped by record high milk prices. This year’s outlook is very different, with the DMC margin currently projected to fall below $9.50/cwt every month until sometime next fall and to average around $8.00/cwt for the year.

Congress’s Bumpy Start Could Smooth Farm Bill

By Paul Bleiberg, Senior Vice President, Government Relations, NMPF.

The beginning of each new Congress is marked by a period of temporary excitement, borne of optimism that legislators will put aside political differences to finally enact solutions to problems affecting Americans from all walks of life.

The opening of the 118th Congress earlier this month presented a different picture. While the usual political disputes between the two parties remain, the first days of this congress featured not a contrast between Republicans and Democrats, but instead disagreements among Republicans about who to elect as Speaker of the House and, more fundamentally, how to govern the institution for the next two years.

Ultimately, after four days of intense negotiation that occurred both in private meetings and in public on the House floor, Republicans voted to elect California Representative Kevin McCarthy as Speaker of the House for the 118th Congress. Six Republican members who had voted against McCarthy on previous ballots chose to vote ‘present’ on the final ballot, clearing a path for McCarthy to claim the Speaker’s gavel.

Personalities certainly played a role in this conflict and its resolution, but so did significant discussions about the ability of individual members to influence the legislation that advances in the House. Part of the agreement that got McCarthy elected speaker allows members to offer many amendments to bills that reach the floor, a departure from recent practice. Amendment debate and votes can sometimes smooth over bumps in the road to a bill’s passage, but they also can create new obstacles.

This may seem like ‘inside baseball,’ but it is of great importance to one piece of legislation expected to advance this year: the 2023 Farm Bill. House Agriculture Committee Chairman Glenn ‘GT’ Thompson (R-PA) kicked off that process with a recent listening session at the Pennsylvania Farm Show in Harrisburg. Many hearings are expected this spring in both the House and Senate agriculture committees.

Soon after that, the work of drafting the bill will begin. Members on and off the committees will seek to have their say. Yes, this means Congress may take votes on a wide range of amendments to the farm bill, good and bad. Hopefully, the amendment process will help to expand the bipartisan, bicameral consensus that will be needed to enact a farm bill, and not detract from it. But dairy will need to do its part to make sure the process doesn’t work to the detriment of its interests. That means we’ll be striving to maintain the Dairy Margin Coverage program and separate risk management tools, with tweaks as needed, and to ensure dairy’s needs are met in other key titles like conservation, trade, and nutrition.

Dairy will be engaging closely to help guide Congress to that outcome. The beginning of the new Congress wasn’t the most auspicious in terms of unity. Even so, policy progress is always possible, and on the farm bill and other issues, we will work with both sides of the aisle – and even both sides of one aisle should there be conflicts – to get things done.


This column originally appeared in Hoard’s Dairyman Intel on Jan. 23, 2023.

No DMC payments again for November

The November DMC margin was $10.89/cwt, eighteen cents higher than the October margin, as costs fell faster than prices.

The U.S. average all-milk price dropped $0.30/cwt in November from a month earlier to $25.60/cwt, while the DMC November feed cost was $0.48/cwt lower than the prior month, driven mostly, in equal measure, by lower soybean meal and premium alfalfa hay prices.

Available forecasts currently project the DMC margin will fall below $9.50/cwt during the first three quarters of 2023.  Enrollment for both calendar year 2023 DMC and Supplemental DMC closes on Jan. 31.

No DMC payments for October as Prices Rise

The U.S. average all-milk price rose $1.50/cwt in October from a month earlier, boosting the month’s DMC margin well above the $9.50/cwt maximum coverage level needed to trigger program payments, after two months of payouts.

The October margin was $10.71/cwt, $2.09/cwt higher than September’s margin. The DMC feed cost dropped by $0.59/cwt in October, driven entirely by a sizeable drop in the price of corn.

Another small payment for $9.50/cwt Tier 1 coverage may be triggered in December, based on current projects. Payments this year under the program, for August and September, together total the equivalent of about $0.19/cwt on an annualized basis and would be enough to cover the annual premium for a farmer enrolled in DMC at the $9.50 coverage level.

NMPF’s Galen on DMC Signup

 

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.”

DMC Returns to Payments in August

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.

Milk Price and DMC Margin Outlooks Pull Back from Recent Records

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.