The trajectory of dairy margins continues to improve in 2024, as average profitability reached $12.33 per hundredweight (cwt.) in July. This was the highest margin for making milk since May 2022. Forecasts for the remainder of the year expect margins to reach nearly $16 per cwt., according to the Dairy Margin Coverage (DMC) program estimates given current milk and feed price projections.
In 2018, Congress passed the farm bill that included DMC, a voluntary program that offers protection to dairy producers when the All-Milk price and average feed costs fall below a threshold that is selected by the producer. With a minimum selection of a $9.50 per cwt. margin, dairy producers can enroll in DMC to have coverage should margins fall below their selected level.
Income over feed costs (IOFC) is the baseline to measure DMC margins. This takes the All-Milk price and primary feed ingredients such as corn, alfalfa hay, and soybean meal into account. In July, corn averaged $4.24 per bushel, premium alfalfa hay stood at $237 per ton, and soybean meal was $364.30 per ton, with an All-Milk price of $22.80 per cwt. The combined feed costs of $10.47 per cwt. less the All-Milk price resulted in the $12.33 per cwt. margin.
Only in January and February of this year were indemnity payments sent to producers as margins were below $9.50 per cwt. This is a considerable improvement from the 11 of 12 months that sent payments to enrollees in 2023. Softened feed costs have contributed the most to improved margins this year. However, what’s shaping up to be the third highest milk price year adds to the positivity.
After a few years of drastic volatility in milk and feed prices, there is a positive outlook for 2024 and 2025 with regards to profitability margins for U.S. dairy producers. According to the August World Agricultural Supply and Demand Estimates (WASDE) report, the All-Milk price in mid-2025 is forecasted at $22.75 per cwt. Corn and soybean meal futures in mid-2025 are trading near $4.45 per bushel and $332 per ton, respectively, on the CME. These grain prices have come down extensively over the past 18 months when corn was approximately $6.50 per bushel and soybean meal was around $500 per ton, with an $23.10 per cwt. All-Milk price. That’s good news for dairy farmers heading into the year ahead.
