Tag: dairy margin coverage
August DMC Margin Lowest Ever
The August margin USDA announced for the Dairy Margin Coverage program, $5.25/cwt., fell to its lowest-ever since margin protection became the main federal dairy safety net in 2014, slipping below the previous low of $5.37/cwt. margin from May 2020. A $0.20/cwt. drop in the U.S. average all-milk price from a month earlier, to $17.70/cwt., and a $0.24/cwt. rise in feed costs, mostly due to a higher corn price, produced the August margin.
USDA has still not begun to announce the revised margins using 100 percent dairy quality alfalfa, a change to the program’s feed-cost calculation made in August at NMPF’s urging. Incorporating the change, which will be retroactive to 2020, would set the August margin at $5.03/cwt.
USDA reported that, as of Sept. 27, the 19,009 operations enrolled in this year’s DMC program are expected to receive $817,171,664 in payments, based on previously announced margins. Margins for the remaining five months in 2021, including August, are not included in this total. Dairy futures continue to indicate further DMC payments for $9.50/cwt coverage for every month remaining this year.
DMC Margin Drops Again in July; Margin Formula to Be Updated
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.
DMC Margin Drops Again in June
The June margin under the Dairy Margin Coverage program dropped 65 cents from May’s margin to $6.24/cwt, which will generate a June payment of $3.26/cwt for $9.50/cwt coverage. The DMC feed cost calculation for June was lower by $0.16/cwt of milk from May, mostly on lower soybean meal prices, while the June U.S. average all-milk price took a larger than expected drop of $0.80/cwt from May, a return to April levels. The blended alfalfa hay price increased in June, for the ninth straight month.
The current futures-based price outlook indicates that the DMC margin will not rise much above $7.00/cwt through the summer and remain below $9.50/cwt through the end of 2021. USDA reported that estimated DMC payments for the 2021 program exceed $543 million as of July 26.
DMC Payments Increase in May
The May margin under the Dairy Margin Coverage program dropped 5 cents from April to $6.89/cwt, which will generate a May payment of $2.61/cwt for $9.50/cwt coverage, as increases in feed costs more than offset gains in milk prices.
The May U.S. average all-milk price rose by $0.80/cwt from April to $19.20/cwt, but the May DMC feed cost calculation also rose from a month earlier, by $0.85/cwt. This was the largest one-month jump in the margin program’s feed cost calculation since margin protection first became the main federal safety-net program for dairy in early 2014. Corn prices were higher in May by the equivalent of $0.64/cwt of milk in the formula, which was also the highest ever single-month increase since the inception of dairy margin protection in the formula’s corn-price component. Meanwhile, the blended alfalfa hay price increased by the equivalent of $0.15/cwt of milk in the formula, the highest single month increase in the formula’s alfalfa price component since premium alfalfa was added to it at the beginning of 2019.
The current futures-based price outlook indicates that the national all-milk price will not likely further rise much more than a dollar per hundredweight above its May level through the end of 2021, while the DMC program’s feed cost calculation may not recede much from May, thus raising the prospect that the margin could stay below $9.50/cwt for all of 2021. USDA reported that estimated DMC payments exceeded $446 million as of June 28.
DMC Margin Payment Falls in April as Milk Prices Improve
The April payment under the Dairy Margin Coverage program fell $0.48/cwt from March to $2.56/cwt for $9.50/cwt coverage, as higher milk prices that easily outstripped rising corn costs boosted margins. The April U.S. average all-milk price rose a full dollar per hundredweight from a month earlier to $18.40/cwt, while the April DMC feed cost calculation was $0.52/cwt higher, due almost entirely to a higher corn price.
Current futures prices indicate that the DMC program margins will continue to rise at a moderate pace, thus reducing monthly payments, and surpass $9.50/cwt by late summer. USDA reported last week that as of May 24, estimated DMC payments for this year have exceeded $344 million.
Dairy Market Report – May 2021
DMC Margin Rises in March
The March margin under the federal Dairy Margin Coverage Program rose $0.24/cwt above February’s to $6.46/cwt, with forecast for future margin’s indicating that February may have been the year’s low.
The March U.S. average all-milk price was $17.40/cwt, $0.30/cwt higher than in February, while the DMC March calculated feed cost was just $0.06/cwt higher than February’s. On a per hundredweight of milk basis, a higher corn price in March was almost entirely offset by a lower cost of soybean meal. The March payment for $9.50/cwt DMC program coverage is $3.04/cwt. On an annualized basis, the DMC program will have already paid the equivalent of $2.17/cwt for coverage at $9.50/cwt during the first quarter of 2021 alone.
Current futures prices indicate that the DMC program margins going forward may remain below $9.50/cwt until late summer, as rising milk prices compete with higher costs for corn and hay. USDA reported that 164.7 billion pounds of production history, or 79.4 percent of the total, was enrolled in the 2021 DMC program, with an estimated $223 million in payments for disbursement as of April 19.
DMC’s January Payout Exceeds Annual Premium Costs
The margin in January for the Dairy Margin Coverage program, the main federal dairy safety-net initiative, was $7.14 per cwt, down from $8.78 per cwt in December. That generated a payment of $2.36 per cwt for $9.50 per cwt coverage for January – which, by itself, was already more than enough to repay the full cost of signing up for the program at the maximum coverage level for the entire year.
The January all-milk price dropped another dollar from December to $17.50 per cwt. Meanwhile, the remaining $0.64 per cwt monthly drop in the margin was generated almost entirely by increases in corn and soybean meal costs. The one-month increase in the margin’s feed cost was the highest for the DMC as well as for its predecessor, the Margin Protection Program, which was initiated in 2014.
With current futures prices indicating that the all-milk price won’t rise above January’s level for several months and that corn will keep rising and soybean meal will not get much cheaper over the same period, the program is expected to generate substantial payments in 2021.
Dairy Market Report – January 2021
November DMC Margin Above Assistance Threshold; 2021 Payments Expected
The monthly margin for November under the Dairy Margin Coverage (DMC) program was $11.87 per cwt, the second-highest monthly margin of 2020. Margins are still expected to fall in 2021, with levels that trigger federal assistance payments for much of the year.
The November U.S. average all-milk price was $21.30 per cwt, the highest of all 2020 monthly milk prices, but that month’s DMC feed-cost calculation was $9.43 per cwt of milk, also the year’s highest. The highest margin in 2020 – and the highest since November 2014 – was $12.41 per cwt in July, when the all-milk price was $20.20 per cwt, but the feed cost was just $8.09 per cwt.
High margins and prices are expected to be distant memories for the foreseeable future, according to current dairy futures. Milk prices are not anticipated to rise much above $18.00 per cwt, with DMC margins projected to remain well below $9.50 per cwt, at least through next summer. Growth in dairy cow numbers and milk production are accelerating. Meanwhile, the COVID-19 pandemic is expected to keep food service use of dairy depressed for some time, and the outlook for continued USDA food purchases does not currently appear able to be fully adequate to bridge this growing gap between milk and supply and demand.
The cost side is also expected to be challenging: Increased prices of corn and soybean meal are projected to boost the DMC feed cost calculation well above $10.00 per cwt during this same forecast horizon.
The DMC information page on NMPF’s website offers educational resources to help farmers better use the program.
