The new year began with a somewhat prosperous $21.60 All-Milk price forecast. Eventually hamstrung by $13.77 and $14.91 Class III milk prices in June and July, USDA economists revised and lowered the 2023 All-Milk price projections by a previously unthinkable $2.05 per hundredweight (cwt.) by mid-year. While the All-Milk price forecast has since rebounded by 85 cents to a $20.40 per cwt. prediction, this summer’s low prices brought back bad memories from the disastrous 2009 milk price year when mailbox milk prices cratered at $12.82 per cwt.
Two factors separated this year from the dreadful 2009 when dairy farm balance sheets hemorrhaged capital — Dairy Margin Coverage (DMC) and Dairy Revenue Protection (DRP). Neither product was in the marketplace in 2009. This time around, both insurance options delivered much-needed relief to cushion the blow of low milk checks this year.
These days, between 55% to 65% of U.S. milk production has some form of price protection. For milk insured under the DMC program, an additional $3.94 per cwt. has been paid out to dairy farmers in the form of insurance coverage created in the 2018 Farm Bill.
By August 2023, total DMC payments for 2023 surpassed $1.2 billion for the 17,000-plus enrolled dairy farms. With four months yet to go in 2023, this year’s DMC payout has already surpassed the 2021 record of $1.19 billion. The highest payments came when Class III prices were at their lowest in June and July. In those months, DMC payments netted $5.85 and $5.98 per cwt., respectively, as shown in the graph.
DRP has also delivered important price risk mitigation. The quarterly insurance product that operates much like crop insurance paid out net indemnities of $330 million on 27.6 billion pounds of effective production during the first and second quarters of this year.
What the new year holds for dairy is yet to be seen. While DRP will be available through USDA’s Risk Management Agency (RMA), DMC became a viable option for dairy farmers via the 2018 Farm Bill. That bill is set to expire at year’s end. It will either require a new farm bill or an extension of the current farm bill to allow dairy producers to have access to DMC coverage in 2024.
To learn more, read “Dairy could rebound from summer setbacks” in the CoBank October 2023 Quarterly Research Report.
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(c) Hoard's Dairyman Intel 2023
October 16, 2023