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USDA’S Feed-Cost Decision Improves DMC Payment Outlook

July 8, 2019

USDA’s announcement that it was modifying the feed-cost calculation for the DMC margins to reflect the cost of dairy-quality alfalfa hay has offered additional assistance for producers who sign up for the program.

Under USDA’s formula, the department will use the simple average of the U.S. average price received by farmers for all alfalfa hay and the average price received in the five largest milk-producing states for premium and supreme grade alfalfa hay. That’s a change from the previous Margin Protection Program, which used only the lower U.S. average price for all alfalfa hay. The change will increase the calculated DMC feed costs for the first five months of the year by an average of 21 cents per hundredweight of milk, which reduces the DMC margin by the corresponding amount. This will generate larger payments for program participants whose coverage level is high enough to trigger compensation.

The National Milk Producers Federation has long urged USDA to calculate the margins using the cost of higher quality alfalfa used in dairy feed rations and secured a provision in last year’s farm bill directing the department to collect and report the necessary data. In its announcement, USDA stated that the change would “provide a total feed cost that more closely aligns with hay rations used by many producers.”

The DMC margin for May is $9.00 per cwt, generating a payment for the month of 50 cents per cwt for producers who purchase coverage for 2019 at the DMC maximum level of $9.50 per cwt, for up to 5 million pounds of production history. May’s DMC margin was $0.18 per cwt higher than April’s, resulting from a $0.30 per cwt higher milk price and $0.12 per cwt higher feed cost.

USDA’s DMC Decision Tool, which assists producers in making their program enrollment decisions, has been updated to reflect the recent change to the feed cost calculation. As of June 28th, the tool, which can be accessed online, was projecting margins that would generate payments that average $0.49 per cwt., net of estimated federal sequestration, for all of 2019 to producers who sign up for $9.50 per cwt coverage on up to 5 million pounds of production history. Coverage at this level costs $0.15 per cwt for the year.

The NMPF’s DMC information page on its website offers a variety of educational resources to help farmers make better use of the program.