With the highest milk prices in years, or even decades, 2022 has been exhilarating for dairy farmers. Yet, margin volatility is still a major concern despite the high milk price. The figure below depicts the milk price, feed costs, and margins according to USDA as calculated for the Dairy Margin Coverage. Noticeable is the climbing milk price (light gray area) since September 2021. However, the rise in feed costs (dark gray area) since September 2020 is also clear.
The main impact of these two trends is a margin capped at $12.51 per hundredweight (cwt.) in May 2022 that is not much greater than the margins observed in July 2020 ($12.29 per cwt.) or November 2019 ($12.21 per cwt.). All of this is to say that the margin has been oscillating between $5.03 and $12.51 within the last year and has started to decline in July 2022, even to the point of triggering payment from the Dairy Margin Coverage (DMC) program in August 2022.
Insure your bottom line
Dairy Margin Coverage is a risk management tool to ensure a certain margin. It is defined as the difference between the All-Milk price and the feeding costs, both measured in dollars per cwt. When a farmer pays a premium to ensure a certain margin for a certain amount of the yearly production, DMC pays an indemnity when the margin measured by USDA is below the margin insured. For example, dairy operations that covered their production for a margin of $9.50 per cwt. should receive a payment from the program for the month of August 2022, a month in which the income was $24.30 per cwt. but the feed cost was $16.22 per cwt.
Enrollment for 2023 and Supplemental DMC
Enrollment for the 2023 DMC program opened on October 17 and will remain open until December 9, 2022. Since October 17, 2022, the enrollment for the 2023 DMC program is open. Farms can enroll until December 9, 2022. Given the current volatility of margins, dairy farmers should strongly consider enrolling for this risk management tool before enrollment closes.
In addition, Supplemental DMC is also available during the 2023 enrollment. The Supplemental DMC was introduced by USDA for helping small and mid-size farms (5 million pounds of shipped milk per year or less) to enroll supplemental production relative to the historical production. If needed, visit www.fsa.usda.gov for additional information.