Although sign-up for the new Dairy Margin Coverage (DMC) program does not begin until June, payment calculations are already underway. With the January 2019 income over feed cost margin announced at $7.99 per hundredweight (cwt.), producers who choose to sign up at the $9.50 cwt. coverage level will receive a payment of $1.51 per cwt. on eligible January production.

The January payment alone will almost cover the entire year’s Tier 1 premium cost of 15 cents per cwt., applicable to the first 5 million pounds of milk enrolled.

If other months result in payments at the $9.50 coverage level (which is extremely likely at this point in time and which will be a known quantity for additional months of 2019 before sign-up begins), then dairy producers will have the rare opportunity to participate in a program that they know with certainty will result in financial gain for their operation.

While other decisions will need to be made at sign-up time . . . such as whether to commit to the same elections for all five years of the program in exchange for a 25 percent premium discount and whether to protect more than 5 million pounds of annual milk production by participating in Tier 2 . . . do not miss out on what is almost certain to be a net financial gain.

Use the time between now and June to think about the other options of DMC that will best help your operation, not only in terms of revenue maximization, but also in terms of risk management. Pay attention to future releases of USDA information regarding the particulars of program implementation and sign-up.

There is one other important point to make.

While DMC is not expected to generate a lot of additional milk supply on average, it very well may limit production declines when margins are low for extended periods and keep market prices lower for longer. That’s because participating producers will be able to offset at least some financial losses with DMC payments.

That being said, don’t miss this opportunity to protect your operation from low margins, particularly in a year when the premium cost will already be covered by known program payments.

To comment, email your remarks to intel@hoards.com.
(c) Hoard's Dairyman Intel 2019
March 11, 2019
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