The combination of higher feed costs and falling milk prices induced the largest payments so far this year for USDA’s dairy insurance program.

At $5.68, the milk-to-feed margin for the Dairy Margin Coverage (DMC) program was 54 cents lower than February 2021’s $6.22 (milk margin above feed costs). One must look back to the height of the pandemic in May 2020 to find a number in that range. May 2020 posted a $5.37 milk margin above feed costs.

This July’s $5.68 milk-to-feed margin has led to a $3.82 per hundredweight (cwt.) payout for farmers buying the maximum $9.50 coverage level in USDA’s signature farm bill program.

Comparing the months

When compared to last month, lower milk prices and higher feed costs combined to shrink that margin. Milk fell from $18.40 to $17.90 per cwt. In May, milk prices peaked at $19.20 for the year.

On the feed side of the equation, both corn and alfalfa climbed to highs for the year. July corn rose by 12 cents to reach $6.12 per bushel. Meanwhile, blended alfalfa hay rose by $2 per ton to reach $216.50 per ton. That’s up by $28 per ton from the start of the year. The only bright side was soybean meal that slid to $365.23. In January, that ration staple had been fetching $439.24 per ton. To learn more, go to USDA’s website for Dairy Margin Coverage.

The final calculations for July’s DMC payments came about due to USDA’s release of Agricultural Prices on August 31. As for the coming month’s DMC payments, we do know that milk’s value for August will be lower than the July numbers, as Class III had a value of $15.95 (down 54 cents) and Class IV was $15.92 (down 8 cents).

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(c) Hoard's Dairyman Intel 2021
September 02, 2021
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