What does USDA licensed dairy operation data tell us about the effectiveness of the Dairy Margin Coverage (DMC) Program in providing a safety net to dairy producers?

Throughout 2019, the collective U.S. dairy industry experienced the largest reduction in farm operations since data tracking began in 1992. The overall national average indicated a loss of 8.8% of dairies, as reported in “U.S. dairy farms hit hard.”

Given this situation, there is a temptation to conclude that DMC has been ineffective thus far. But by digging deeper into the numbers, the data challenges this conclusion.

Enrollment statistics show that just over 82% of U.S. dairy operations enrolled in DMC last year. At one end of the spectrum, Mississippi enrolled nearly 92% of operations, while at the other end of the signups, Georgia enrolled less than 55%. Is there a link between higher state-level DMC participation and fewer dairy operations lost?

The results are mixed.

Of the U.S. licensed dairy operations, 64% are in just five states: Wisconsin, Pennsylvania, New York, Minnesota, and Ohio. Minnesota, Wisconsin, and Pennsylvania were all among the top 10 states in terms of DMC participation by operation, with Pennsylvania (-7.6%) and Minnesota (-8.4%) losing a smaller percentage of operations than the national average, while Wisconsin (-9.2%) lost more operations than average. Ohio (-11.8%) lost a larger share of operations than New York (-7.4%), though New York was in the bottom half of DMC participation by operation.

A clearer picture

Sorting the remaining states by their DMC participation percentage shows a stronger relationship between DMC participation and loss of dairy operations. The remaining half of operations with relatively high DMC participation (82.6%) saw only 6.9% of operations leave the industry, with the other half (72.3% DMC participation) losing 11.1% of operations. The Southeast region, which saw 12.1% of operations disappear, only had 71.5% participation in DMC. The Midwest (9.7% fewer operations) had a DMC participation rate of 84.9%, followed by the Northeast (-7.5%) with 81.7% participation and the West (-5.9%) with 78.3%.

Bottom line

Many factors affect an operation’s decision to exit the industry. While DMC was designed to help participants weather difficult margin periods, its scope is limited. Even though DMC payments were roughly $312 million for producers in 2019, milk cash receipts last year topped $40 billion. It remains difficult to limit the exposure to lower margins when DMC payments are such a small percentage of cash receipts.

As the DMC program continues to operate, it will become easier to analyze its effect on dairy operation numbers. The early returns show mixed results in a link between program participation and operations remaining in the dairy business.

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(c) Hoard's Dairyman Intel 2020
March 2, 2020
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