With the milk price component of the Dairy Margin Coverage (DMC) calculation climbing for the tenth consecutive month in October, and margin levels above the $9.50 threshold since August, the fact that feed costs have crept higher in recent months has received little attention. Yet, DMC feed costs reached their highest level since December 2014 in both June and July of this year, and uncertainty regarding crop markets next year should be factored into the 2020 enrollment decision due this December 13.

Most projections for crop prices in the next few months show only minor upward movement in corn and soybean meal prices. USDA currently expects corn prices for the 2019 to 2020 marketing year to average $3.85 per bushel, up modestly from $3.61 for 2018 to 2019. Soybean meal prices are projected to average $325 per ton, up just 5 percent from the recently completed marketing year.

Factoring feed into DMC sign-ups
Penciling in these projections for the 2020 DMC calculation are not likely to result in many, if any, DMC payments if milk prices remain near or above the levels of recent months. However, with corn supplies projected to be at the lowest level in four years, and the lowest level in six years for soybeans, there is more upside price risk than the market has seen in recent years if another difficult growing season occurs in 2020.

With about 11 percent of the corn crop and 4 percent of the soybean crop still unharvested as of the beginning of the month, the potential for the beginning supply to shrink even further is certainly a possibility. Another factor to consider is the amount of river flooding and saturated soils present in many key crop-producing areas throughout this fall. This could prove a challenge for a large portion of acres to be planted in a timely manner next spring as well.

Reaching a 2020 sign-up decision
While DMC margins have been well above the payment threshold this fall . . . and many current projections keep margins above $9.50 for each month of 2020 . . . there are many plausible scenarios that would result in payments in 2020. While considering whether it makes sense for your operation to enroll in DMC for 2020, don’t neglect to consider the risk management implications of the program.

To comment, email your remarks to intel@hoards.com.
(c) Hoard's Dairyman Intel 2019
December 9, 2019
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