The 2023 Farm Bill debate is underway. That debate includes potential changes to safety nets found in the farm bill. While the path to the finish line for a new farm bill remains unclear, the federal dairy safety net perspective and the Dairy Margin Coverage (DMC) program will garner discussion.

When it comes to the new farm bill, there are going to be constraints to making changes to the DMC program. Any DMC program changes will need to be scored by the Congressional Budget Office (CBO). When looking to the future, it appears challenging to make changes to the DMC program that increase the CBO score significantly from the current DMC program.

The current DMC program provides lower premiums to cover a dairy operation's first 5 million pounds of production history. The lower premiums offered for the first 5 million pounds have made the program more attractive for states with smaller dairy operations, as these operations can fully cover their production history with lower premium costs.

The graph provides 2021 DMC payments as a percentage of 2021 dairy cash receipts on the vertical axis and the percentage of operations with more than 500 dairy cows on the horizontal axis for many key dairy states. Illinois, Virginia, and Pennsylvania, which all have less than 30% of their operations with more than 500 cows, show some of the largest DMC payment percentages relative to cash receipts. Meanwhile, Arizona, New Mexico, California, Colorado, Idaho, and Florida, which all have more than 90% of their operations with more than 500 cows, show some of the lowest DMC payment percentages relative to cash receipts.

Raising the quantity of production history covered under the first-tier premiums could be one of the options discussed in the 2023 Farm Bill debate. Those states that are made up of larger producers could support that idea. However, the program cost of increasing the first tier to more than 5 million pounds could prove too expensive and increase projected spending much more than the current program.

As the discussion unfolds about what is an adequate safety net for dairy producers, it is instructive to remember in a low-margin year like 2021, DMC payments made up less than 8% of cash receipts for any of the states analyzed.

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(c) Hoard's Dairyman Intel 2023
January 19, 2023
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